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THE  ANNALS 


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POLITICAL  AND  SOCIAL  SCIENCE 


ISSUED  BI-MONTHLY 


VOL.  XXVI,  No.  3 


NOVEMBER    1905 


Editor:  EMORY  R.  JOHNSON 

ASSOCIATE  editors:  SAMUEL  McCUNE  LINDSAY,  JAMES  T.  YOUNG 


PHILADELPHIA 

American  Academy  of  Political  and  Social  Science 

1905 


Copyright  1905,  by  the  American  Academy  o£   Political  and  Social  Science 

All  rights  reserved 


^ 


NATIONAL  REGULATION  OF  RAILROADS 


By  Hon.  Martin  A.  Knapp, 
Chairman,  Interstate  Commerce  Commission. 


If  I  may  venture  to  say  anything  upon  a  subject  which  has 
nearly  exhausted  discussion  it  will  be  to  emphasize  one  or  two 
points  which  perhaps  have  not  been  sufficiently  noted  and  to  out- 
line certain  considerations  which  I  regard  as  fundamental.  The 
agitation  for  a  more  efficient  control  of  interstate  carriers  is  the 
outgrowth  of  an  insistent  public  sentiment  and  expresses  a  deter- 
mined purpose  to  correct  existing  abuses.  Since  the  passage  of  the 
act  to  regulate  commerce  in  1887,  which  in  many  respects  was  un- 
derstood to  be  a  tentative  and  ex])erimental  measure,  no  important 
^  change  or  enlargement  of  its  provisions  has  been  made,  except  the 

addition  of  the  excellent  Elkins  law,  although  its  limited  scope  and 
insufficient  restraints  have  long  been  apparent.  Meanwhile  the  rail- 
way mileage  has  increased  upwards  of  50  per  cent.,  revenues  have 
more  than  doubled,  numerous  lines  formerly  independent  have  been 
merged  into  great  systems  or  otherwise  brought  under  unified  con- 
trol, and  many  other  conditions  have  arisen  which  were  not  foreseen 
or  taken  into  account  when  the  original  law  was  enacted.  The 
time  has  arrived  when  this  scheme  of  regulation  should  be  carefully 
revised  not  only  in  its  substantive  features,  but  also  to  an  extent  in 
its  methods  of  administration. 

This  does  not  imply  that  the  present  law  should  be  discarded 
and  some  new  theory  of  regulation  be  given  a  trial.  There  is  little 
reason  to  discredit  the  act  of  1887  or  warrant  the  effort  to  belittle 
its  operation.  It  is  a  statute  of  broad  and  beneficent  aim  based  upon 
principles  which  are  concededly  wholesome  and  correct.  Indeed, 
when  we  remember  that  the  enormous  power  of  the  Congress  under 
the  commerce  clause  of  the  Constitution  had  lain  dormant  for  nearly 
a  hundred  years,  when  we  call  to  mind  the  amazing  rapidity  of  rail- 
way construction  during  the  two  speculative  decades  that  followed 
the  Civil  War,  when  we  take  into  account  the  conditions  which  had 
grown  up  with  that  extraordinary  development  and  realize  that 
practices  which  are  now  regarded  with  reprobation  were  then  looked 

[613] 


241752 


3  The  Annals  of  the  American  Academy 

upon  with  tolerance  and  found  little  condemnation  in  the  average 
conscience,  it  is  quite  remarkable  that  a  law  should  have  been  passed 
which  expresses  such  just  rules  of  conduct  and  which  contains  such 
comprehensive  and  salutary  provisions.  It  is  the  part  of  wisdom, 
as  I  believe,  not  to  attempt  any  radical  departure  from  the  principles 
and  purposes  of  this  enactment,  but  to  supply  needed  legislation 
for  correcting  its  defects,  strengthening  its  provisions  and  aug- 
menting  its   authority. 

The  Basis  of  Regulation. 

In  the  statements  before  the  Senate  Committee  and  in  current 
discussions  in  the  press  and  elsewhere  there  is,  as  it  appears  to  me, 
some  confusion  of  thought  and  a  degree  of  failure  to  make  proper 
distinctions.  In  many  quarters  it  seems  to  be  supposed  that  the 
one  thing  requisite  is  to  increase  the  powers  of  the  Interstate  Com- 
merce Commission ;  whether  that  shall  be  done  or  not  is  the  chief 
point  of  controversy.  To  my  mind  that  is  only  one  side,  and  per- 
haps not  the  most  important  side,  of  this  complex  and  obstinate 
problem.  Without  disagreeing  at  all  with  those  who  advocate  an 
enlargement  of  the  commission's  authority,  for  I  am  in  full  sym- 
pathy with  their  purposes,  it  is  entirely  clear  to  me  that  other  mat- 
ters are  of  equal  if  not  greater  consequence.  There  is  much  to  be 
considered  and  decided  before  we  come  to  the  qviestion  of  admin- 
istrative power,  which  is  merely  the  machinery  for  giving  effect  to 
measures  of  regulation.  We  must  begin  by  prescribing  in  the 
statute  law,  with  as  much  precision  and  certainty  as  the  case  admits, 
the  rules  of  conduct  which  it  is  the  province  of  administration  to 
apply  and  enforce.  The  substantive  law  must  first  be  made  ample 
and  explicit,  clear  and  comprehensive  in  its  definition  of  legal  duty 
and  as  exact  as  may  be  in  its  restraints  and  requirements.  The  obli- 
gations of  the  railroads  to  the  public,  the  restrictions  which  limit 
their  freedom  or  abridge  their  privileges,  the  standards  by  which 
the  lawfulness  of  their  conduct  is  to  be  gauged,  must  all  be  found 
in  the  regulating  statute  as  the  necessary  foundation  of  adminis- 
trative action.  It  is  one  thing  to  enact  a  code  of  laws  to  be  ob- 
served by  the  carrying  corporations,  it  is  quite  another  thing  to  pro- 
vide the  means  for  securing  conformity  to  that  code  and  giving 
effect  to   its   requirements.      If  the    substantive  provisions   of   the 

[614] 


National  Regtdation  of  Railroads  3 

statute  are  inadequate  or  defective,  if  its  standards  of  obligation 
and  duty  are  insufficient  or  inexact,  the  shortcoming  cannot  be  made 
good  by  administrative  machinery,  however  elaborate  or  carefully 
constructed. 

This  is  the  point  to  which  I  specially  desire  to  direct  attention, 
because  just  here  is  found  the  explanation,  for  the  most  part,  of 
whatever  disappointment  or  failure  has  attended  the  effort  to  give 
effective  operation  to  the  act  of  1887.  The  refusal  of  the  courts 
to  enforce  disregarded  orders  of  the  commission  has  shown  in 
practically  every  instance  not  that  the  facts  had  been  incorrectly  or 
unfairly  found  and  reported,  but  that  the  ascertained  and  admitted 
facts,  whatever  injustice  or  wrongdoing  they  might  appear  to  es- 
tablish, did  not  disclose  any  violation  of  legal  duty.  The  courts 
have  not  affirmed  that  certain  practices  condemned  by  the  commis- 
sion were  right  and  just,  and  ought  to  be  permitted  to  continue, 
they  have  merely  declared  that  those  practices  are  not  imlazvful. 
So  far  from  furnishing  grounds  for  questioning  the  fitness  or  fair- 
ness of  the  commission,  which  really  is  quite  beside  the  mark,  these 
very  decisions  by  exposing  defects  in  the  substantive  provisions  of 
the  statute  si:pply  a  persuasive  argument  in  favor  of  its  amendment. 
Had  the  present  law  established  a  different  tribunal  or  relied  upon 
the  federal  courts  to  make  it  effective,  the  practical  result  would 
have  been  precisely  the  same. 

The  distinction  here  sought  to  be  emphasized  is  made  apparent, 
at  least  to  my  mind,  when  we  take  our  observation  from  the  correct 
point  of  view.  Under  the  commerce  clause  of  the  Constitution  all 
legislative  power  over  interstate  carriers  is  vested  in  the  Congress. 
That  power,  as  was  decided  by  the  Supreme  Court  so  far  back  as 
1825,  is  plenary  and  'exclusive  and  subject  to  no  limitations  except 
such  as  are  found  in  the  Constitution  itself.  But  the  Congress 
cannot  delegate  its  regulating  authority  by  general  or  wholesale 
enactment;  to  do  so  would  be  little  more  than  the  declaration  of  a 
sentiment.  It  may  legislate  as  minutely  as  it  chooses ;  for  any  prac- 
tical purpose  it  must  legislate  not  only  on  general  lines  but  as 
specifically  as  the  nature  of  the  case  permits  as  to  each  and  every 
matter  which  is  made  the  subject  of  regulation.  It  cannot  transfer 
its  authority  to  an  administrative  body  of  its  own  creation,  or  even 
to  the  federal  courts,  to  be  exercised  at  discretion,  except  within 
limits  and  probably  within  somewhat  narrow  limits.     In  that  which 

[615] 


4  The  Annals  of  the  American  Academy 

is  enacted  must  be  found  alike  tlie  things  required  and  the  things 
forbidden.  If  the  statute  itself  does  not  impose  a  duty  or  restraint 
in  respect  of  a  particular  matter,  there  can  be  as  to  that  matter  no 
basis  for  adjudging  that  the  act  complained  of  is  unlawful.  In  this 
connection  it  should  be  remembered  that  the  common  law  obliga- 
tions of  interstate  carriers,  if  there  be  any,  are  of  little  value  as 
restraints  upon  wrongdoing.  The  misconduct  which  injures  and 
the  practices  which  work  injustice  are  not  malum  per  se,  and  there- 
fore they  can  be  corrected  only  by  legislative  enactment.  That  is 
to  say,  "regulation"  in  all  important  and  essential  respects  must  be 
regulation  by  the  Congress.  The  written  law  must  go  to  the  full 
extent  of  prescribing  requirements,  imposing  restraints  and  fixing 
limitations,  not  only  in  general  terms  but  as  specifically  as  the  nature 
of  the  particular  subject  admits;  and  if  the  statute  is  wanting  in  this 
regard,  if  its  standards  of  duty  and  liability  are  not  ample  and 
plainly  defined,  the  injustice  not  reached  or  forbidden  because  of 
that  defect  will  go  without  correction.  In  a  word,  the  substantial 
features  of  any  adequate  scheme  of  public  control  must  be  incor- 
porated and  defined  in  the  provisions  of  an  act  of  Congress.  That 
which  the  statute  law  does  not  specifically  condemn  and  definitely 
enjoin,  the  carrier  is  legally  free  to  do  or  omit. 

The  importance  of  what  has  thus  been  said  will  perhaps  be  bet- 
ter understood  by  pointing  out  its  practical  applicaton.  The  task  in 
hand  is  to  devise  a  system  of  regulating  laws  which,  while  pre- 
serving the  benefits  of  private  ownership,  shall  furnish  sufficient 
control  over  railway  carriers  to  ensure  transportation  charges  which 
are  reasonable  and  relatively  just.  Whatever  difference  of  opinion 
there  may  be  as  to  whether  rates  in  general  are  higher  now  than 
they  ought  to  be,  or  are  liable  to  be  excessive  in  the  future  if  public 
authority  does  not  amply  prevent,  there  is  a  unanimous  demand  that 
rebates  and  every  sort  of  private  preference  shall  be  done  away  with, 
and  that  rate  adjustments  as  between  different  localities  and  articles 
of  traffic  shall  be  free  from  any  unjust  discrimination. 

Now,  to  secure  the  results  which  all  right-minded  persons  desire 
in  this  regard,  it  is  evident  that  the  regulating  laws  must  at  the  out- 
set require  the  publication  of  rates  and  charges  and  thereby  provide, 
at  least  prima  facie  and  for  the  time  being,  a  legal  standard  of  com- 
pensation for  the  service  offered.  In  short,  we  must  begin  with  pro- 
viding an  open  and  common  rate  readily  ascertainable  by  the  pub- 

[6 1 6] 


National  Regulation  of  Railroads  5 

lie  which  measures  while  it  remains  in  force  the  lawful  charges  of 
the  carrier.  Obviously,  then,  so  long  as  observance  of  the  standard 
rate  is  obligatory,  whether  it  be  established  by  the  carrier's  voluntary 
action,  as  is  now  the  case,  or  prescribed  in  the  first  instance  by 
public  authority,  the  next  problems  of  regulation  are  of  two  dis- 
tinct and  unlike  classes.  Stated  in  another  way,  there  are  two  gen- 
eral but  dissimilar  things  to  be  accomplished,  each  involving  its  pecu- 
liar difficulties.  It  is  at  once  necessary  to  devise  measures  for 
ensuring  conformity  to  the  common  standard  and  also  to  provide 
means  by  which  the  standard  itself  may  be  changed  or  its  reason- 
ableness tested.  There  is  a  fundamental  difference  between  deal- 
ing with  a  rebate  or  secret  concession  of  any  kind  and  correcting 
an  established  and  observed  rate  which  is  found  to  be  excessive 
or  relatively  unjust.  Yet  adequate  provision  must  be  made  for 
both  these  things  in  the  statute  law,  independent  of  its  administra- 
tion, or  the  regulating  scheme  will  be  incomplete  and  disappointing. 
Unless  both  results  are  actually  secured  by  substantive  enactment, 
unless  favoritism  of  every  sort  is  prevented  on  the  one  hand,  and  on 
the  other  there  are  efficient  means  of  altering  an  unreasonable  or 
unjust  rate  which  all  shippers  are  compelled  to  pay,  the  public  will 
lack  needful  protection  and  the  duty  of  the  carrier  be  incapable  of 
enforcement. 

It  requires  little  reflection  to  perceive  that  the  only  efficient 
mode  of  dealing  with  the  entire  range  of  offenses  which  result  from 
departures  from  the  published  rate  is  to  place  them  in  the  category 
of  criminal  misdemeanors.  Civil  remedies  for  such  wrongdoing  are 
of  insignificant  value,  for  they  neither  afford  redress  to  those  who 
are  injured  by  secret  practices  nor  do  they  operate  with  any  force 
to  prevent  the  recurrence  of  similar  misconduct.  On  the  other  hand, 
the  appropriate  means  for  bringing  about  the  reduction  of  an  unrea- 
sonable rate  or  a  change  in  unjust  rate  relations  preclude  the  use  of 
criminal  penalties.  Within  the  limits  of  an  honest  difference  of 
judgment — the  limits  of  actual  controversy — the  rates  established 
by  the  carrier  and  charged  to  all  alike  cannot  in  reason  be  made  the 
basis  of  criminal  liability,  although  they  may  afterwards  be  adjudged 
in  some  degree  excessive  or  unfairly  related.  For  one  purpose, 
therefore,  the  suitable  legislation  will  differ  in  essential  character 
from  that  adapted  to  the  other.  To  reach  one  class  of  offenses  we 
must  have  penal  statutes  and  criminal  courts,  to  reach  the  other 

[617] 


6  The  Annals  of  the  American  Academy 

class  we  must  have  standards  of  obligation  applied  and  enforced  by 
a  civil  tribunal.  The  failure  to  observe  this  primary  distinction  in 
general  and  in  particular  will  leave  the  regulating  enactment,  how- 
ever carefully  devised  and  developed,  more  or  less  faulty  and  un- 
workable. Nor  is  it  enough  to  recognize  these  unlike  and  diverse 
aims  in  framing  the  statute  law ;  it  is  equally  needful  that  each 
requirement  be  met  with  substantive  provisions  of  comprehensive 
scope  and  adequate  detail. 

Let  me  illustrate  with  examples  drawn  from  the  act  of  1887. 
And  first,  a  defect  in  its  penal  provisions  through  failure  to  define, 
as  to  a  distinct  class  of  dishonest  transactions,  an  offense  that  could 
he  proved.  It  was  undoubtedly  intended  to  provide  that  a  shipper 
who  accepted  a  rebate  should  be  guilty  of  a  misdemeanor.  That 
certainly  ought  to  be  the  law.  But  the  courts  held,  in  construing 
the  language  of  the  second  section,  that  it  was  not  enough  to  show 
the  payment  of  less  than  the  tariff  rate  on  a  given  shipment,  but 
that  in  addition  there  must  be  shown  the  payment  of  a  higher  rate 
by  another  shipper  for  a  like  and  contemporaneous  service.  That  is, 
it  was  necessary  to  prove  discrimination  in  fact  as  between  the 
accused  and  some  other  shipper  before  there  could  be  a  conviction. 
As  a  practical  matter  this  was  ordinarily  out  of  the  question.  For 
instance,  it  appeared  that  dressed  beef  was  carried  for  a  long  time 
and  in  large  quantities  from  the  Missouri  River  to  Chicago  at 
materially  less  than  tariff  rates,  but  it  also  appeared  that  the  same 
rate  was  allowed  to  all  the  packers.  Although  the  concessions,  or 
rebates,  amounted  to  thousands  and  thousands  of  dollars,  there  was 
no  actual  discrimination  as  between  different  shippers,  so  far  as 
could  be  ascertained,  and  therefore  in  a  legal  sense  no  criminal 
wrongdoing  by  any  of  them !  Fortunately  this  loophole  through 
which  shippers  escaped  for  years  was  stopped  effectually,  as  is 
believed,  by  the  Elkins  law  which  makes  the  published  tariff  the 
legal  standard  and  departure  from  that  standard  the  punishable 
offense.  But  the  point  to  be  observed  is  that  gross  misconduct 
could  be  indulged  in  with  impunity  not  because  of  any  administra- 
tive shortcoming,  but  solely  because  the  substantive  law  contained 
a  provoking  defect. 

To  illustrate  the  other  and  distinct  phase  of  the  subject,  refer- 
ence may  be  made  to  the  long  and  short  haul  question.  The 
charging  of  a  higher  rate  to  a  nearer  than  to  a  more  remote  point, 

[618] 


National  Regulation  of  Railroads  7 

though  perhaps  not  the  most  serious,  is  undoubtedly  the  most  aggra- 
vating form  of  discrimination.  So  obnoxious  were  tariff  adjust- 
ments of  this  sort,  so  flagrantly  wrong  in  many  cases,  that  the 
Congress  plainly  intended  to  provide  a  specific  remedy  in  the  fourth 
section  of  the  act  to  regulate  commerce.  The  greater  charge  for 
the  lesser  distance  was  therefore  prohibited  "under  substantially 
similar  circumstances  and  conditions,"  and  a  long  course  of  litiga- 
tion followed  over  the  legal  meaning  of  the  quoted  phrase.  With- 
out reciting  the  cases  in  which  this  question  arose,  it  is  sufficient  to 
say,  taking  the  decisions  together,  that  dissimilarity  exists  where 
competition,  not  merely  of  carriers  but  of  markets  as  well,  is  pres- 
ent at  the  more  distant  place  and  absent  or  less  forceful  at  the 
intermediate  place,  and  that  where  dissimilarity  is  found  the  prohibi- 
tion does  not  apply.  Now,  as  a  matter  of  fact,  the  higher  charge 
for  the  shorter  haul  is  rarely  if  ever  exacted  except  on  account  of 
some  competitive  condition  at  the  more  distant  point  not  existing  at 
nearer  places.  It  follows,  therefore,  that  the  exception  to  the  rule 
covers  practically  all  the  actual  cases  and  leaves  the  rule  itself  with 
little  or  nothing  to  act  upon.  A  provision  designed  to  have  potent 
and  remedial  effect  has  been  construed  into  a  mere  abstraction.  I 
do  not  criticise  the  decisions  of  the  courts  upon  this  section.  As  a 
matter  of  statutory  construction  they  were  doubtless  right.  Nor 
is  it  to  my  present  purpose  to  argue  that  the  section  should  be 
amended  and  some  practical  limitation  placed  upon  rate  adjustments 
of  this  kind.  That  is  for  the  Congress  to  determine.  But  I  call 
attention  to  the  fact  that  discrimination,  however  unjust,  caused  by 
lower  charges  for  a  longer  distance — the  shorter  distance  charges 
being  reasonable  per  se — is  not  now  unlawful,  and  that  there  must 
be  a  substantive  change  in  the  statute  before  there  can  be  any 
administrative  control  or  restraint  upon  this  class  of  discriminations. 
It  is  primarily  the  subject  of  enacted  regulation  quite  apart  from 
the  status  or  authority  of  the  tribunal  of  administration. 

Another  example  relates  to  a  matter  of  undoubted  importance. 
The  present  law  in  no  way  abridges  the  freedom  of  carriers  to 
determine  for  themselves  in  the  first  instance  the  rates  they  shall 
charge,  except  the  general  requirement  that  such  rates  shall  be 
reasonable  and  non-discriminatory,  and  there  is  no  serious  pro- 
posal to  withdraw  or  limit  their  right  to  initiate  such  schedules  as 
they  may  deem  proper  to  establish.    It  is  assumed  that  carriers  will 

[619] 


8  The  Annals  of  the  American  Academy 

continue  to  exercise  their  own  judgment,  as  they  do  now,  in  de- 
ciding originally  what  rates  they  will  publish  and  apply.  This  being 
so,  it  is  apparent  that  some  prescribed  notice  must  be  required  of 
proposed  changes  in  published  tariffs.  If  there  were  no  limitations 
upon  the  right  of  carriers  to  advance  or  reduce  the  rates  which  they 
have  initiated,  they  could  obviously  make  changes  at  pleasure  which 
would  be  little  better  than  not  to  publish  rates  at  all.  The  sixth 
section  of  the  act  allows  advances  to  be  made  on  ten  days'  notice 
and  reductions  on  three  days'  notice.  This  is  the  only  requirement 
which  goes  to  the  stability  of  rates,  a  matter  which  deserves  more 
attention  than  it  sometimes  receives.  Plainly  enough  it  is  now  feasi- 
ble for  a  traffic  manager  to  make  an  agreement  or  have  an  under- 
standing with  a  given  shipper,  in  consideration  of  tonnage  secured, 
to  publish  a  reduced  rate  at  a  certain  date  which  may  be  done  easily 
by  giving  a  notice  of  three  days.  The  tonnage  in  question  having 
been  obtained  at  this  reduced  rate,  the  carrier  may  at  once  give 
ten  days'  notice  of  advance  to  the  previous  figure  and  restore  the 
old  rate  when  that  time  has  expired.  The  result  is  equivalent  to  a 
secret  rebate  paid  to  the  shipper  of  the  difference  between  the  two 
rates.  Neither  court  nor  commission  can  now  prevent  a  transaction 
of  the  kind  suggested  because  the  method  employed  is  under  statu- 
tory sanction.  In  a  word,  such  a  discrimination  is  not  unlawful, 
and  therefore  cannot  be  reached  or  corrected  so  long  as  tariffs  may 
be  legally  changed  upon  the  short  notice  above  stated.  Believing 
that  stability  of  rates  is  a  matter  of  primary  public  concern  and 
ought  to  be  secured  to  a  much  greater  degree  than  is  now^  the  case, 
I  am  strongly  of  the  opinion  that  the  required  notice  of  tariff 
changes  should  be  considerably  extended.  But  my  point  now  is  that 
this  is  a  regulation  which  pertains  to  the  substantive  law^  and  that 
any  injustice  which  results  from  authorized  changes  on  such  short 
notice  cannot  be  corrected  by  strengthening  the  administrative  ma- 
chinery. 

Again,  the  existing  law  permits  connecting  carriers  to  form 
through  routes  and  establish  joint  through  rates,  which  are  usually 
much  less  than  the  sum  of  their  local  rates,  but  this  they  now  do  by 
voluntary  action  and  not  by  virtue  of  any  legal  requirement.  They 
are  free  to  make  such  arrangements  and  to  discontinue  them  as  and 
when  they  see  fit.  The  failure  or  refusal  of  connecting  roads  to 
form  through  routes  and  provide  through  rates  sometimes  inflicts 

[620] 


National  Regulation  of  Railroads  9 

manifest  hardship,  and  the  fact  that  such  rates  cannot  be  compelled 
is  claimed  to  discourage  the  construction  of  local  and  branch  lines. 
Inasmuch  as  mutual  service  of  this  sort  rests  in  the  option  of  the 
carriers,  it  is  not  infrequently  the  case  that  shippers  are  obliged  to 
pay  full  local  rates  over  two  or  more  roads  because  their  managers 
cannot  or  do  not  agree  upon  lower  through  rates  and  their  division. 
It  follows  that  if  needful  joint  service  at  proper  rates  is  to  be  se- 
cured in  such  cases,  it  must  be  made  obligatory  in  the  substantive 
regulation. 

Another  instance  of  what  I  have  in  mind  suggests  a  matter  of 
great  economic  significance,  and  that  is  the  relation  of  domestic  to 
export  and  especially  to  import  rates.  It  often  happens  now  that 
traffic  is  carried  from  its  origin  in  a  foreign  country  to  an  interior 
destination  in  the  United  States  at  a  total  through  rate  very  much 
less  than  the  domestic  rate  from  the  same  port  of  entry  to  the  same 
destination.  In  a  commercial  sense  of  course  the  foreign  article 
is  carried  under  unlike  circumstances  and  conditions ;  and  this  has 
been  held  by  the  Supreme  Court  to  justify  or  permit  import  rates 
lower  than  domestic  rates.  Incidentally  it  may  be  noticed  that  the 
practical  result  of  this  ruling  is  at  variance  with  our  tariff  policy 
and  that  in  particular  instances  the  difference  in  favor  of  the  im- 
ported article  may  defeat  the  purpose  of  protective  duties.  However 
that  may  be,  the  act  as  construed  in  this  regard,  like  the  construc- 
tion of  the  long  and  short  haul  clause,  contains  no  practical  restraint 
upon  discriminations  of  this  class,  and  this  defect  in  the  substantive 
law,  if  it  be  deemed  a  defect,  cannot  be  obviated  by  changes  in 
administrative  methods  or  authority. 

The  same  observations  may  be  made  in  respect  of  many  other 
matters  which  now  give  rise  to  well-founded  complaints  of  dis- 
crimination, such  as  private  car  lines,  terminal  roads,  elevators  and 
the  like.  Some  of  these  matters,  at  least  under  given  circumstances, 
may  be  within  the  scope  of  the  present  law.  Others  are  not  em- 
braced within  its  terms  or  are  claimed  by  the  carriers  to  be  unaffected 
by  its  provisions.  Until  this  claim  has  been  passed  upon  by  the 
court  of  last  resort,  which  means  protracted  litigation,  the  discrim- 
inating effect  of  facilities  and  practices  now  unregulated  must  be 
suffered  to  continue.  If  some  requirement  or  prohibition  suited  to 
the  nature  of  the  case  is  not  embodied  in  the  regulating  statute  the 
exempt  transaction,  however  unjust  or  injurious,  will  remain  a  law- 

[621] 


lo  The  Annals  of  the  American  Academy 

ful  exercise  of  the  carrier's  volition  and  so  beyond  the  jurisdiction 
of  courts  or  commissions.  Only  that  which  the  statute  enjoins  can 
be  required ;  only  that  which  it  makes  unlawful  can  be  prevented. 

Thus  it  appears,  if  I  am  not  mistaken,  that  in  some  important 
respects  the  foundation  of  the  act  of  1887  is  badly  constructed  or 
incomplete  to  a  degree  not  always  appreciated.  The  partial  failure 
of  that  act  to  accomplish  its  beneficent  purpose  arises  mainly,  as  I 
conceive,  not  because  the  administration  of  the  law  has  been  lax  or 
incompetent,  nor  altogether  because  judicial  declaration  has  de- 
prived the  commission  of  authority  over  rates  which  it  was  origi- 
nally supposed  to  possess,  but  because  the  substantive  provisions  of 
the  statute  do  not  provide  the  necessary  groundwork  for  more  suc- 
cessful effort.  While  I  firmly  believe  that  the  powers  of  the  com- 
mission should  be  enlarged,  I  also  believe  that  it  is  even  more  essen- 
tial to  extend  and  recast  the  enacted  rules  of  conduct  and  thereby 
provide  the  basis  of  eft'ective  control.  It  is  for  the  Congress  by  its 
regulation  to  further  enjoin,  require,  limit,  restrict  or  forbid  as  may 
be  needful  or  appropriate,  and  this  is  a  matter  which  properly  pre- 
cedes the  question  of  administration. 

Tribunals  of  Regulation. 

After  the  rules  of  conduct  and  standards  of  obligation  to  be 
observed  by  carriers  have  been  determined  and  defined  in  the  regu- 
lating statute,  according  as  the  Congress  may  determine,  we  come 
to  the  question  of  the  agency  and  methods  of  administration.  It  is 
not  now  the  extent  or  degree  of  authority  to  be  exercised,  but  the 
kind  of  tribunal  to  perform  the  administrative  duty.  Shall  the 
enforcement  of  the  law  be  remitted  to  the  federal  courts  or  shall 
there  be  a  commission  to  exercise  legislative  rather  than  judicial 
authority?  In  answering  this  question  we  must  keep  in  mind  the 
unlike  and  separable  things  to  be  accomplished  by  our  scheme  of 
regulation.  As  already  stated,  the  only  suitable  means  of  securing 
the  observance  of  published  tariffs  are  criminal  penalties  for  dis- 
regard or  evasion,  while  the  appropriate  methods  for  bringing  about 
such  changes  in  those  rates  as  justice  may  require  are  limited  to 
civil  proceedings.  It  is  assumed  that  this  distinction  will  be  ob- 
served in  framing  the  legislation  and  in  every  effort  to  give  effect 
to  its  provisions. 

[622] 


National  Regulation  of  Railroads 


II 


Manifestly  the  criminal  remedy  can  be  applied  only  by  the 
courts.  In  this  respect  there  is  no  difference  between  a  misdemeanor 
under  the  regulating  statute  and  a  misdemeanor  under  any  other 
law.  Both  must  be  dealt  with  in  the  same  way,  and  this  implies  in 
the  one  case  as  in  the  other  a  strictly  judicial  procedure.  Therefore, 
all  those  provisions  which  are  designed  to  prevent  the  payment  of 
rebates  and  kindred  practices,  of  whatever  character  or  description, 
must  be  enforced  by  courts  of  proper  jurisdiction,  and  can  be 
enforced  in  no  other  way. 

But  when  we  consider  the  other  field  of  administration,  where 
authority  is  to  be  exercised  not  to  secure  conformity  to  the  published 
standard  of  charges,  but  to  change  the  standard  itself  when  found 
unreasonable  or  relatively  unjust,  it  seems  plain  to  me  that  a  judicial 
tribunal  is  neither  suitable  nor  adequate.  The  fundamental  objec- 
tion to  any  proposal  to  devolve  upon  the  courts  the  duty  of  regu- 
lating in  this  direction,  that  is,  making  required  changes  in  tariff 
schedules,  is  that  the  questions  involved  are  essentially  legislative 
and  not  judicial.  The  thing  to  be  done  is  not  the  appropriate  sub- 
ject of  judicial  determination.  The  courts  cannot  apply  the  requisite 
remedy.  If  the  charge  for  a  given  service  is  fifty  cents  a  hundred 
pounds  and  that  charge  is  excessive,  the  needful  change  is  the 
substitution  of  a  lower  charge  for  the  future.  This  is  distinctly  a 
legislative  function.  The  same  may  be  said  with  equal  certainty 
with  reference  to  relative  rates  which  discriminate  between  differ- 
ent localities  or  articles  of  traffic.  The  proper  readjustment  in  such 
cases  involves  considerations  which  courts  do  not  take  into  account, 
but  which  come  within  the  broader  range  of  legislative  discretion. 
That  the  courts  will  not  exercise  jurisdiction  to  prescribe  either 
absolute  or  relative  rates  appears  to  be  plainly  affirmed  by  the  Su- 
preme Court  in  the  Reagan  case,  154  U.  S.,  362,  in  the  following 
language : 

"The  courts  are  not  authorized  to  revise  or  cliange  tlie  body  of  rates 
unposed  by  a  legislature  or  commission;  they  do  not  determine  whether  one 
rate  is  preferable  to  another,  or  what  under  all  circumstances  would  be  fair 
and  reasonable  as  between  the  carriers  and  the  shippers ;  they  do  not  engage 
in  any  mere  administrative  work." 

This  distinction  is  tersely  stated  by  Mr.  Justice  Brewer  in  the 
maximum  rate  case  in  these  words : 

[623] 


12  The  Annals  of  the  American  Academy 

"It  is  one  thing  to  inquire  whether  the  rates  which  have  been  charged 
and  collected  are  reasonable — that  is  a  judicial  act;  but  an  entirely  different 
thing  to  prescribe  rates  which  shall  be  charged  in  the  future — that  is  a  legis- 
lative act." 

Undoubtedly  the  courts  can  and  will  under  statutory  authority, 
and  to  an  important  extent  without  it,  exercise  such  jurisdiction  as 
will  indirectly  affect  rates  for  the  future,  but  they  cannot  and  will 
not  undertake  to  prescribe  the  schedule  which  shall  take  the  place 
of  one  found  excessive  or  unfairly  adjusted.  They  can  prevent  the 
administrative  encroachment  of  constitutional  rights,  but  they  can- 
not be  authorized  to  correct  the  injustice  of  an  unreasonable  or 
preferential  rate  by  substituting  a  just  and  reasonable  standard  of 
charges.  At  best  and  at  most  the  control  of  rates  by  judicial  action 
is  an  indirect,  uncertain  and  limited  scheme  of  regulation.  If  that 
plan  is  adopted  it  is  quite  certain  that  we  must  enter  upon  a  long 
litigation  to  find  out  how  much  the  courts  can  do,  how  much  they 
will  do  and  how  they  will  do  it. 

Broadly  speaking,  the  judicial  machinery  is  provided  to  punish 
those  who  violate  criminal  laws  and  to  decide  private  as  distin- 
guished from  public  controversies.  A  tariff  rate  which  is  too  high 
or  which  unduly  discriminates  does  not  constitute  an  individual 
grievance  merely,  but  affects  every  person  who  may  be  required  to 
pav  that  rate  for  a  transportation  service.  The  continuance  of  an 
unjust  rate  or  its  correction  is  a  matter  of  public  concern,  and 
matters  of  public  concern,  apart  from  the  enforcement  of  criminal 
laws,  are  ordinarily  the  appropriate  subject  not  of  judicial  but  of 
legislative  determination. 

The  notion  may  be  far-fetched  and  will  doubtless  be  combatted, 
but  I  am  disposed  to  regard  a  tariff  rate  which  has  been  legally 
established  as  analogous  to  a  civil  law.  It  answers  to  the  broad 
definition  of  such  a  law  because  it  is  in  effect  a  rule  of  conduct 
which  measures  the  obligation  of  shipper  and  carrier  alike.  As  a 
practical  matter  so  far  as  the  public  is  concerned,  it  does  not  seem 
to  me  to  very  much  matter  whether  a  given  rate  is  established  by  the 
voluntary  action  of  the  carrier,  by  the  exercise  of  public  authority 
in  the  first  instance,  or  by  direct  legislation.  In  either  case  it  fixes 
with  substantially  the  force  of  an  enactment  the  price  at  which  pub- 
lic carriage  can  be  obtained.  If  that  rate  is  departed  from  by  any 
sort  of  forbidden  preference  or  concession,  a  condition  exists  which 

[624] 


National  Regulation  of  Railroads  13 

seems  to  me  exactly  like  the  violation  of  a  criminal  statute,  as  is  now 
the  case,  and  courts  are  constituted  to  prevent  and  punish  such 
transgressions.  But  if  the  rate  is  itself  wrong,  no  matter  how  it 
came  to  be  in  force,  if  its  application  produces  actual  or  relative 
injustice,  a  condition  exists  which  is  altogether  similar  to  an  unwise 
or  oppressive  act  of  legislation  that  ought  to  be  amended  or  repealed. 

If  rates  were  established,  as  they  might  be,  by  direct  legislation, 
it  would  be  manifestly  absurd,  assuming  they  were  not  confiscatory, 
to  provide  for  their  alteration  by  resort  to  the  courts.  The  appeal 
in  such  case  would  be  to  the  legislature  as  the  only  source  of  relief. 
Likewise,  if  rates  were  fixed  in  the  first  instance  by  public  authority, 
as  is  done  in  several  states,  the  courts  could  not  interfere  except  to 
protect  constitutional  rights.  It  seems  plain  to  me  that  in  such 
cases  there  could  be  ordinarily  no  question  for  judicial  cognizance. 
Now,  how  does  the  way  in  which  a  given  rate  was  originally  im- 
posed affect  the  nature  of  the  appropriate  tribunal  of  regulation? 
If  rates  fixed  in  the  first  instance  by  the  legislature  or  by  a  com- 
mission with  delegated  powers  could  not  be  the  subject  of  judicial 
inquiry,  why  is  it  that  rates  established  by  the  carriers  themselves 
should  be  subjected  only  to  judicial  investigation  and  control? 

In  a  certain  sense  and  for  certain  purposes  the  reasonableness 
of  a  transportation  charge  presents  a  judicial  question.  Such  a 
question  arises  when  a  rate  has  been  paid  which  is  claimed  to  be 
unreasonable  and  suit  is  brought  to  recover  the  excess.  But  a  rate 
may  be  claimed  to  be  excessive  from  the  standpoint  of  the  public, 
without  regard  to  any  instance  of  individual  hardship,  and  that 
rate  presents  a  legislative  question.  It  does  not  follow,  therefore, 
even  if  rate  control  goes  no  further  than  to  require  the  discon- 
tinuance of  unreasonable  charges  without  undertaking  to  prescribe 
for  the  future,  that  a  legislative  tribunal  is  not  the  proper  one  to 
determine  the  controversy.  The  circumstance  that  courts  may  in 
some  cases  and  to  some  extent  consider  and  decide  such  questions 
is  not  at  all  inconsistent  with  the  idea  that  they  are  essentially 
legislative. 

The  view  I  take  and  the  distinction  I  draw  may  be  indicated 
by  an  example.  The  present  grain  rate  from  Chicago  to  New  York, 
established  by  the  carriers,  is  17^  cents  per  hundred  pounds.  Now, 
I  do  not  believe  it  would  be  possible  by  competent  evidence  in  a 
judicial  proceeding  to  prove  that  this  rate  is  unreasonable.     On  the 

[625] 


14  The  Annals  of  the  American  Academy 

other  hand,  if  pubHc  authority  should  fix  that  rate  at  15  cents — the 
rate  recently  in  force — either  by  direct  legislation  or  through  a  com- 
mission, I  do  not  believe  it  possible  for  the  carriers  to  prove  by 
competent  evidence  that  15  cents  would  be  confiscatory  or  in  any 
way  encroach  upon  their  constitutional  rights.  Between  these  two 
rates  there  is  a  margin  of  two  and  a  half  cents  which  may  be  said 
to  measure  the  sphere  of  legislative  discretion.  The  courts  might 
decide  in  a  case  within  'their  jurisdiction  that  a  given  rate  is  not 
unreasonably  high,  but  it  does  not  follow  that  a  lower  rate  on  the 
same  article  imposed  by  public  authority  would  be  adjudged  unrea- 
sonably low  and  therefore  be  restrained.  In  other  words,  a  rate 
which  the  courts  would  not  condemn  in  a  suit  to  recover  damages 
nor  enjoin  as  the  result  of  judicial  inquiry,  if  that  could  be  done, 
may  be  a  higher  rate  in  given  circumstances  than  the  public  ought 
to  be  required  to  pay,  just  as  a  rate  imposed  upon  the  carrier  which 
the  courts  would  not  condemn  as  confiscatory  or  for  any  other 
reason  may  be  lower  than  the  carrier  should  be  permitted  to  charge. 
It  is  both  true  and  right  that  courts,  generally  speaking,  decide 
the  cases  that  come  before  them  upon  the  legal  evidence  submitted 
and  in  accordance  with  settled  principles  of  jurisprudence,  and  do 
not,  as  a  rule,  directly,  if  at  all,  take  into  account  the  economic  con- 
sequence of  their  decisions.  On  the  other  hand,  the  legislature  in 
determining  whether  existing  rules  of  conduct  shall  be  changed  or 
new  rules  adopted  is  not  controlled  by  evidence  or  by  judicial  pre- 
cedent, but  acts  presumably  upon  the  broadest  considerations  of 
public  welfare.  It  is  not  too  much  to  say  that  every  controversy 
involving  the  adjustment  of  freight  rates  presents  an  economic 
problem  whose  solution  should  be  determined  with  the  view  of 
promoting  the  largest  public  advantage  consistent  with  the  just 
rights  of  the  carrier.  The  courts  decide  questions  of  legal  right; 
legislatures  consider,  when  their  action  is  governed  by  intelligence, 
the  probable  effect  of  their  enactments  upon  all  the  interests  likely 
to  be  affected.  These  comments  have  reference  to  the  distinct  nature 
of  the  judicial  function  as  distinguished  from  the  legislative  func- 
tion. It  is  further  to  be  observed  that  a  scheme  of  rate  regulation 
by  the  courts  would  doubtless  be  held  unconstitutional,  as  numerous 
decisions  affirm  and  as  pointed  out  in  the  lucid  opinion  furnished 
by  Attorney-General  Moody  to  the  Senate  Committee.  Therefore, 
from  whatever  point  of  view  this  matter  is  observed,  it  seems  plain 

[626] 


National  Regulation  of  Railroads  15 

to  me  that  the  questions  here  referred  to  are  distinctly  legislative 
questions  and  that  the  proper  tribunal  of  regulation,  whether  its 
authority  be  greater  or  less,  is  legislative  and  not  judicial. 

Administratiz'e  Authority. 

Having  provided  the  needful  code  of  substantive  law  and 
decided  that  it  shall  be  administered  by  a  commission  and  not  by  a 
court,  so  far  as  the  regulation  of  rates  is  concerned,  the  next  thing 
to  determine  is  the  measure  of  authority  which  the  administrative 
body  shall  be  permitted  or  required  to  exercise.  Under  the  present 
law,  as  it  has  been  interpreted,  the  commission  cannot  in  any  case 
determine  what  rate  shall  be  observed  in  the  future.  It  can  only 
decide  whether  the  charges  fixed  by  the  carriers  conform  to  the 
standard  of  reasonableness  and  relative  justice,  and  if  found  other- 
wise, direct  their  discontinuance.  Whether  the  law  shall  be  so 
amended  as  to  authorize  the  commission,  after  investigating  a  com- 
plaint upon  notice  and  opportunity  to  be  heard,  to  prescribe  the 
future  rate  in  that  case,  if  the  complaint  is  well  founded,  is  the 
stoutly  controverted  ciuestion.  I  do  not  undertake  to  discuss  this 
question  for  I  can  add  nothing  to  what  has  already  been  said.  Be- 
sides, the  purpose  of  this  paper  is  to  outline  certain  principles  of 
regulation  rather  than  to  argue  for  an  increase  of  official  authority. 
I  am  firmly  convinced  that  the  agency  entrusted  with  the  enforce- 
ment of  such  rules  of  conduct  as  may  be  enacted  in  relation  to  rates 
should  be  a  commission  and  not  a  court,  whether  the  authority 
devolved  upon  the  regulating  tribunal  be  limited  to  the  present  or 
extend  into  the  future.  I  realize  that  the  power  to  decide,  even  in 
contested  cases  and  subject  to  judicial  review- — which  is  all  that  is 
proposed  and  even  more — what  rates  shall  be  charged  in  the  future 
is  a  very  important  power  and  involves  grave  responsibihty.  Per- 
sonally, as  a  member  of  the  commission,  I  do  not  covet  the  exercise 
of  that  power  and  should  welcome  some  other  adequate  solution  of 
the  question  at  issue ;  but  how  can  any  other  plan  be  relied  upon  to 
provide  proper  and  sufficient  control  over  railroad  rates  and  prac- 
tices? The  argument  for  denying  such  control  virtually  admits,  as 
it  seems  to  me,  that  the  freedom  of  the  carriers  to  make  such  obtain- 
able rates  as  they  may  deem  for  their  interest  is  not  to  be  materially 
abridged.     However  far-reaching  may  be  the  proposal  to  invest  a 

[627] 


i6  The  Annals  of  the  American  Academy 

commission  in  any  case  with  actual  authority  over  future  rates,  is 
not  the  denial  of  that  authority,  to  be  exercised  by  a  legislative 
tribunal,  a  far  more  serious  proposition? 

Effect  of  Administrative  Action. 

One  further  observation.  If  an  administrative  tribunal  rather 
than  a  court  is  the  selected  agency  for  enforcing  the  enacted  rules 
of  conduct  in  respect  of  rates,  whatever  be  the  extent  or  degree  of 
its  authority,  the  orders  which  it  is  empowered  to  make  should  be 
self-enforceable  and  not  as  now  only  prima  facie  findings  for  the 
purpose  of  legal  proceedings.  It  is  not  sufficient  or  suitable  that  the 
administrative  body  charged  with  the  duty  of  giving  effect  to  the 
regulating  statute,  and  exercising  such  authority  as  the  Congress 
may  confer,  should  be  obliged,  when  its  directions  are  disregarded, 
to  become  a  suitor  in  the  courts  to  enforce  its  own  determinations. 
When  the  commission  has  investigated  and  decided,  when  it  has 
promulgated  such  an  order  as  it  may  be  authorized  to  make,  its 
duty  in  the  premises  should  be  fully  discharged  and  ended.  Sub- 
ject to  such  judicial  review  as  will  protect  against  the  abuse  or 
unreasonable  exercise  of  delegated  authority,  the  lawful  directions 
of  the  regulating  tribunal,  unless  restrained  or  set  aside  by  the 
courts,  should  take  effect  and  be  obligatory  substantially  the  same  as 
legislative  enactments.  Whether  it  be  deemed  sufficient  to  provide 
only  for  condemnation  and  orders  of  desistence,  or  whether  in  addi- 
tion authority  be  bestowed  to  prescribe  for  the  future,  however 
much  or  little  the  power  with  which  administration  is  invested,  the 
legislation  should  be  so  framed  as  to  compel  the  carrier  to  comply 
with  an  authorized  requirement  or  to  resort  to  the  courts  for  its 
suspension  or  annulment. 

Therefore,  as  I  conceive,  the  problem  of  enacting  or  amending 
laws  for  the  regulation  of  interstate  carriers  includes  the  four  ele- 
ments which  I  have  thus  briefly  described.  To  my  mind  they  are 
quite  distinct  and  separable  as  I  have  endeavored  to  explain.  Each 
presents  its  peculiar  phases  and  furnishes  its  special  field  of  con- 
troversy. The  task  of  legislating  upon  this  subject  is  difficult  and 
the  need  urgent.  It  cannot  be  doubted  that  a  correct  analysis  and 
clear  apprehension  of  the  principles  involved  will  aid  a  wise  and 
useful  outcome. 


LIMITATIONS    UPON    NATIONAL    REGULATION    OF 

RAILROADS 


By  O.  E.  Butterfield, 
Attorney  for  the  Michigan  Central  Railroad,  Detroit,  Mich. 


This  paper  is  written  from  the  point  of  view  of  those  who  are 
engaged  in  the  management  of  the  railroad  business.  For  con- 
venience of  treatment,  the  subject  is  divided  into  three  parts:  i. 
The  Extent  of  the  Federal  Power  over  Railroads.  2.  Limitations 
by  Economic  Laws.     3.  Limitations  by  Common  Law. 

1.     The  Extent  of  the  Federal  Pozver  over  Railroads. 

The  federal  power  over  railroads  is  confined  to  their  operations 
in  respect  to  commerce  with  foreign  nations,  among  the  several 
states  and  with  the  Indian  tribes.  The  courts  have  held  that  when 
an  article  of  commerce  begins  to  move  from  a  point  in  one  state 
to  an  ultimate  destination  in  another  state,  or  even  to  a  destination 
in  the  same  state,  if  it  is  to  pass  into  another  state  in  transit,  inter- 
state commerce  with  respect  to  that  article  begins.  But  there 
is  still  a  very  considerable  movement  of  freight  and  passengers  upon 
the  railroads  of  this  country  which  is  confined  within  the  limits  of 
a  single  state  and  is  entirely  beyond  the  power  of  Congress  to  regu- 
late. 

Most  of  the  equipment  of  nearly  every  railroad,  however,  is 
used  from  time  to  time  in  the  movement  of  interstate  commerce,  and 
national  regulations  respecting  safety  appliances  therefore  include 
practically  all  the  railroad  equipment  in  the  country. 

Over  that  portion  of  the  business  of  the  railroads  included  in 
the  term  "interstate  commerce,"  the  power  of  Congress  is  absolutely 
exclusive  whether  actually  exercised  or  not.  Even  in  the  absence  of 
any  enactment  by  the  federal  government  the  states  are  powerless  to 

[629] 


1 8  The  Annals  of  the  American  Academy 

enact  laws  which  would  amount  to  a  regulation  of  interstate  com- 
merce. 

The  Supreme  Court  of  the  United  States  has  said  that  the  non- 
exercise  by  Congress  of  this  power  in  respect  to  the  regulation  of 
commerce  among  the  states  is  equivalent  to  a  declaration  that  such 
commerce  shall  be  free  from  any  restrictions  or  impositions.  The 
power  to  regulate  has  been  held  also  to  include  power  'to  prohibit 
commerce  among  the  several  states  in  cases  where  commerce  affects 
injuriously  the  public  welfare,  as  in  the  case  of  the  sale  of  lottery 
tickets. 

Aside  from  provisions  for  the  general  welfare  of  the  public  and 
the  employees  of  the  railroad  companies  found  in  the  requirements 
respecting  the  instrumentalities  of  commerce,  the  federal  regula- 
tion is  most  influential  upon  the  rates  which  may  be  charged  for  the 
transportation  service.  Congress,  undoubtedly,  has  power  to  pre- 
scribe reasonable  rates  for  such  transportation,  either  maximum, 
minimum  or  absolute.  The  magnitude  of  the  problem  as  it  is  pre- 
sented in  this  country  and  the  manifest  difficulty  of  dealing  with  it 
in  a  deliberative  body  so  large  as  the  Congress  have  naturally  sug- 
gested the  assignment  of  the  labor  to  a  commission ;  but  the  pro- 
vision of  the  Constitution  is  that  Congress  shall  have  power  to  regu- 
late. The  fixing  of  rates  is  a  legislative  function  and  it  is  a  well 
settled  rule  of  law  that  Congress  may  not  delegate  its  legislative 
functions  to  any  subordinate  board  or  body.  The  question  arises 
whether  Congress  may  delegate  to  a  commission  the  power  to  pre- 
scribe transportation  rates, — whether  an  act  purporting  to  confer 
such  power  upon  a  commission  would  not  be  void  as  being  an  at- 
tempted delegation  of  a  legislative  function  entrusted  by  the  Con- 
stitution to  the  Congress. 

The  authorities  agree  that  Congress  may  prescribe  certain  rules 
which  shall  be  applicable  to  certain  conditions  and  entrust  to  some 
executive  officer  or  administrative  board  the  determination  of  the 
question  whether  those  conditions  are  present  in  a  given  case.  Con- 
gress, for  example,  may  authorize  the  President  to  suspend,  by 
proclamation,  the  free  introduction  of  certain  commodities  from  a 
country  which  does  not  afford  reciprocal  treatment  to  our  products, 
leaving  to  him  the  determination  of  the  question  of  fact,  whether 
the  treatment  accorded  by  such  country  is  in  fact  reciprocal.  Such 
an  act  was  held  not  to  be  a  delegation  of  legislative  power  and  there- 

[630] 


Limitations  Upon  National  Regulation  of  Railroads  19 

fore  not  unconstitutional.  (Field  vs.  Clark,  143  U.  S.,  649.)  Or, 
Congress  may  leave  to  a  board  of  inspectors  the  determination  of 
the  question  whether  teas  presented  for  import  are  of  inferior  grade 
within  the  meaning  of  the  act.  (Buttfield  vs.  Stranahan,  192  U.  S., 
470.)  But,  if  the  act  purports  to  transfer  to  a  subordinate  board  or 
body  any  function  which  is  properly  legislative  in  its  nature,  whether 
its  exercise  be  limited  or  unlimited,  it  should  be  held  to  be  void. 

It  would  not  be  permissible  for  Congress  to  confer  upon  a  com- 
mission the  power  to  fix  transportation  rates  for  the  future,  sub- 
ject only  to  the  limitation  that  such  rates  should  be  ''reasonable." 
Such  an  act  should  be  held  void  as  a  delegation  of  legislative  power. 
It  would  be  permissible  for  Congress  to  pass  an  act  declaring  that 
transportation  rates  should  be  reasonable,  and  conferring  upon  a 
commission,  subject  to  a  judicial  review,  the  power  to  determine  a 
maximum  rate,  any  increase  of  which  would  be  extortion,  and  a 
minimum  rate,  any  decrease  of  which  would  be  considered  confisca- 
tion. But  between  these  two  extremes.  Congress  alone  has  the 
power  to  exercise  the  federal  authority  to  prescribe. 

The  term  "reasonable"  as  used  in  the  law  on  the  subject  of  rates 
for  quasi  public  service  is  intended  to  define  rates  which  are  not  so 
high,  when  considered  from  the  point  of  view  of  the  public  with 
reference  to  the  value  of  the  service  rendered,  as  to  amount  to  ex- 
tortion, and  on  the  other  hand  are  not  so  low,  when  consideped  from 
the  point  of  view  of  the  carrier  with  reference  to  the  return  upon 
the  investment,  as  to  amount  to  a  taking  of  property  without  due 
process  of  law  or  confiscation.  Between  these  two  extremes,  there 
may  be,  and  usually  is,  a  considerable  latitude  within  which  rates 
may  be  raised  or  lowered  and  still  be  reasonable.  If  Congress  de- 
clares that  the  rates  shall  be  reasonable,  it  simply  declares  that  they 
shall  not  be  so  high  as  to  amount  to  extortion,  nor  so  low  as  to 
amount  to  confiscation,  and  it  would  be  competent  to  commit  to  a 
commission  the  power  to  determine,  subject  to  judicial  review,  the 
question  whether  a  given  schedule  is  outside  the  limit  or  not,  in 
other  words  to  fix  the  maximum  and  the  minimum.  But  it  would  not 
be  competent  for  Congress  to  give  to  any  commission  absolute  discre- 
tion to  fix  the  rates  for  the  future  within  these  limits  of  reasonable- 
ness, for  that  would  be  a  delegation  of  legislative  power  and  abso- 
lutely beyond  the  jurisdiction  of  the  courts  to  review.  The  judicial 
power  to  review  legislation  on  this  subject  extends  only  to  relieving 

[631] 


20  The  Annals  of  the  American  Academy 

the  carrier  from  rates  which  amount  to  confiscation,  or  the  shipper 
from  rates  which  amount  to  extortion ;  but  in  the  review  of  the  action 
of  a  commission  fixing  maximum  and  minimum  rates  the  judicial 
arm  of  the  government  would  guarantee  to  the  carrier  a  rate  which 
would  be  measured  by  the  fair  value  of  the  service  rendered  and  any 
maximum  rate  thus  fixed  below  that  point  would  be  set  aside.  If 
the  lowest  rate  for  a  given  transportation  service  which  would  allow 
the  carrier  a  fair  return  'upon  his  investment  is  eighty  cents  and 
the  highest  which  would  not  amount  to  extortion  is  one  hundred 
cents,  the  Congress  might  prescribe  a  rate  of  ninety  cents,  but  a 
commission  exercising  a  power  to  fix  maximum  or  minimum  rates 
could  not  lawfully  adopt  ninety  as  the  minimum  and  ninety  as  the 
maximum.  The  courts  would  review  such  a  proceeding  and  upon  a 
proper  showing  would  set  it  aside. 

We  are  not  unmindful  of  a  number  of  decisions  of  the  Supreme 
Court  of  the  United  States,  which  are  cited  as  giving  support  to  a 
different  view,  but  we  do  not  so  understand  them.^ 

II.     Limitations  Imposed  by  Economic  Laws. 

There  are  certain  limitations  upon  the  exercise  of  the  power 
of  the  government  to  regulate  railroad  rates  which  must  be  observed 
in  the  formulation  of  any  statute  designed  to  regulate  rates.  It  is 
a  common  opinion  among  those  who  listen  with  approval  to  de- 
clamations in  favor  of  government  regulation  of  railroad  rates  that 
at  the  present  time  the  rates  for  the  transportation  of  freight  by 
railroads  in  this  country  are  prescribed  by  the  traffic  managers  at 
will  and  that  there  is  nothing  to  prevent  their  increase  to  almost  any 
extent.  This  opinion  is  erroneous.  Traffic  managers  of  the  rail- 
roads of  this  country  do  not  make  rates  at  will.  There  are  at  least 
two  classes  of  limitations  by  which  they  are  at  all  times  controlled : 
(a)  Limitations  by  economic  laws;  (b)  Limitations  by  common 
law. 

The  first  class  of  limitations  upon  the  power  of  the  traffic  man- 
agers of  the  railroads  of  this  country  over  rates  is  imposed  by  eco- 
nomic law.  Any  attempt  at  regulation  of  railroad  rates  by  Congress 
which  does  not  observe  these  limitations  will  be  certain  to  fail  to 

1  Stone  1^5.  Farmers'  Loan  and  Trust  Co.,  ii6  U.  S.  307;  Reagan  vs.  Farmers'  Loan  and 
Trust  Co.,  iS4  U.  S.  362;  Interstate  Commerce  Commission  vs.  C.  N.  O.  &  T.  P.  Ry.  Co., 
167  U.  S.  479. 

[632] 


Limitations  Upon  National  Regulation  of  Railroads  21 

satisfy  the  country  as  a  whole,  and  if  enforced  and  persisted  in  will 
do  more  harm  than  good  to  the  commercial  interests  of  the  nation. 
The  law  to  which  we  refer  is  the  law  of  competition  in  trade. 

In  the  first  place,  we  must  not  lose  sight  of  the  very  great 
variety  of  articles  of  commerce  which  are  offered  to  the  railroads 
for  transportation.  Some  combine  great  value  with  very  small 
weight  or  volume,  while  others  combine  great  weight  or  volume 
with  little  value.  Some  are  perishable.  Some  are  frail.  Some  are 
alive.  Some  are  dead.  Some  require  two  or  three  cars  coupled 
together  to  support  them,  while  others  need  no  car  at  all  but  move 
upon  wheels  of  their  own.  Some  go  on  fiat  cars  exposed  to  the 
storm ;  others  will  spoil  if  they  are  not  kept  dry.  Some  are  so  com- 
bustible that  they  cannot  be  placed  near  the  engine.  Some  are  ex- 
plosive and  will  be  discharged  by  rough  handling  of  the  car.  Some 
must  have  water  in  transit  and  some  must  have  ice,  and  some  must 
be  accompanied  by  an  attendant. 

These  considerations  and  others,  which  might  be  mentioned, 
necessitate  classification  of  freight;  and  classifications  have  been 
made  in  which  some  ten  thousand  different  commodities  which  are 
from  time  to  time  offered  to  railroads  for  transportation,  are  named 
and  classified ;  and  such  classifications  are  in  force  all  over  the 
country. 

But  classification  of  freight  overcomes  only  a  few  of  the  diffi- 
culties which  confront  the  rate-makers.  Railroad  business  differs 
from  almost  every  other  kind  of  business  in  that  it  is  not  the  carrier 
that  can  render  the  service  with  the  least  expense  to  itself  that  offers 
the  lowest  rate.  If  a  railroad  has  been  built  between  two  points 
which  furnish  business  sufficient  to  enable  it,  with  reasonable  rates, 
to  pay  operating  expenses  and  a  dividend,  it  is  considered  that  any 
additional  business  which  it  may  be  able  to  secure,  even  though  it 
may  divert  it  from  some  other  carrier  having  a  direct  route,  is 
almost  clear  profit.  It  therefore  happens  that  nearly  every  railroad 
company,  in  addition  to  what  may  be  called  its  legitimate  business, 
attempts  to  secure,  by  joint  arrangement  with  its  connections,  traffic 
between  points  which  are  reached  by  it  with  its  connections,  not  in 
a  direct  line  but  in  a  roundabout  route,  and  in  order  to  secure  such 
traffic  it  offers  rates  much  below  what  would  be  considered  "reason- 
able" for  the  business  which  naturally  belongs  to  it  and  which  it  is 
best  qualified  by  reason  of  location  to  handle,  and  offers  rates  also 


2  2  The  Annals  of  the  American  Academy 

much  below  what  the  owners  of  a  more  direct  route  will  demand  for 
carrying  the  business.  It  often  happens  therefore  that  a  railroad 
company  having  the  shorter  line  between  two  important  points  may 
be  compelled  to  meet  the  competition  of  a  number  of  connecting 
lines  constituting  a  route  which  is  much  longer  and  far  away  from 
the  direct  line. 

The  Michigan  Central  has  a  joint  rate  in  force  from  Detroit  to 
East  St.  Louis,  and  also  to  East  Fort  Madison,  both  being  Missis- 
sippi River  crossings.  The  rate  to  East  Fort  Madison  is  higher 
than  the  rate  to  East  St.  Louis,  and  that  higher  rate  is  applied 
to  traffic  destined  to  East  Fort  Madison.  If,  however,  the  traffic  is 
destined  to  Omaha,  the  lines  by  way  of  East  St.  Louis  will  compete 
for  the  business  and  the  carriers  reaching  East  Fort  Madison  there- 
fore publish  another  lower  rate  to  that  point  for  traffic  destined 
beyond,  which  does  not  exceed  the  rate  to  East  St.  Louis.  This 
lower  rate  is  called  a  proportional  rate. 

Then  there  may  be  situated  on  the  line  of  a  railroad  an  industry 
making  use  of  large  quantities  of  raw  material,  all  coming  from 
some  particular  mine  or  quarry  from  which  this  particular  industry 
takes  the  entire  output.  Here  will  be  an  extensive  traffic  in  one  par- 
ticular commodity  between  the  mine  or  quarry  and  this  one  industry, 
with  which  no  other  traffic  comes  into  competition,  and  the  carriers 
have  found  it  advisable  to  publish  a  special  rate  for  such  business, 
known  as  a  commodity  rate.  A  number  of  articles,  such  as  grain, 
coal,  live  stock  and  dressed  meats,  which  move  in  very  large  quan- 
tities in  one  direction  are  handled  upon  a  commodity  rate. 

It  sometimes  happens  that  a  territory  served  by  a  carrier  may 
have  a  product,  peculiar  to  that  territory,  which  seeks  a  market  far 
away,  and  instead  of  making  rates  on  that  product  varying  with 
each  station  in  the  territory,  it  has  been  deemed  fair  to  establish  a 
rate  which  shall  apply  to  all  the  stations  in  the  territory,  so  that  all 
within  that  district  may  sell  their  product  at  the  same  price  and 
receive  the  same  net  proceeds  after  payment  of  the  freight.  Such 
rates  are  called  group  rates  and  they  are  quite  common  in  some 
parts  of  the  country. 

The  cost  of  water  transportation  from  Chicago  to  New  York 
is  made  the  basis  for  the  determination  of  the  rates  between  the 
Atlantic  seaboard  points  and  a  very  large  portion  of  the  country ; 
the  rates  to  other  points,  by  concerted  action  on  the  part  of  the 

[634] 


Limitations  Upon  National  Regulation  of  Railroads  23 

principal  carriers,  being  made  a  certain  percentage  of  the  Chicago 
rate.  Thus  the  rate  from  New  York  to  Cincinnati  is  87  per  cent. 
of  the  Chicago  rate;  to  St.  Louis,  116  per  cent.;  to  Louisville,  100 
per  cent.;  to  Cleveland,  71  per  cent.;  etc.  In  some  sections  of  the 
country  the  areas  of  these  groups  are  defined,  bounded  and  pub- 
lished upon  a  map  which  is  placed  in  the  hands  of  the  traffic  man- 
agers of  the  interested  roads.  The  groups  vary  in  size  and  their 
area  is  regulated  by  commercial  conditions. 

These  various  classes  of  rates,  as  well  as  the  classification  of 
freight,  are  made  necessary  by  commercial  considerations,  and  result 
from  the  laws  of  trade  which  must  be  given  effect  and  recognition 
in  any  attempt  at  national  regulation. 

The  plan  of  grouping  has  been  objected  to  as  denying  to  the 
producers  in  some  parts  of  the  territory  included  in  the  group,  the 
advantage  to  which  their  location,  that  is,  their  proximity  to  the 
market,  is  supposed  to  entitle  them ;  and  it  is  likely  that  if  the 
government  should  attempt  to  prescribe  rates,  there  would  be  an 
effort  made  to  have  the  group  system  abandoned.  But  it  has  been 
demonstrated  in  the  experience  of  Germany  that  it  is  for  the  best 
interest  of  the  nation  to  put  the  entire  territory  upon  an  equal  foot- 
ing as  far  as  possible,  rather  than  to  allow  to  each  farmer  some 
advantage  in  freight  rates  over  his  next  neighbor  who  may  live  a 
short  distance  farther  away  from  the  market,  because  of  his  geo- 
graphical location.  In  other  words,  rates  must  be  such  as  to  stimu- 
late production  and  at  the  same  time  move  the  product.  In  Ger- 
many, where  they  have  had  government  ownership  of  railroads 
since  1879,  the  government  prescribed  a  rate  on  grain  of  a  certain 
sum  per  ton  per  mile,  regardless  of  the  distance  moved  and  regard- 
less of  all  other  conditions  affecting  the  grain  trade.  The  result  was 
that  grain  could  not  move  by  rail  from  eastern  Germany,  where  it 
was  raised  in  large  quantities,  to  western  Germany,  where  the 
demand  was  greatest,  but  was  compelled  to  seek  an  outlet  by  a 
devious  water  route  with  a  short  rail  haul  at  both  ends  of  the  line. 
In  1888  the  farmers  of  eastern  Germany  demanded  a  reduction  of 
the  grain  rate  so  as  to  permit  them  to  move  it  by  rail,  but  the  demand 
was  refused  on  the  ground  that  a  reduction  would  have  a  tendency 
to  raise  the  value  of  farm  land  in  eastern  Gerniany  and  deny  to  the 
farmers  in  western  Germany  the  advantage  to  which  they  were 
entitled  by  their  geographical  location.    In  1891  there  were  serious 

[635] 


24  The  Annals  of  the  American  Academy 

crop  failures  which  brought  great  hardship  upon  the  laborers  in 
western  Germany,  and  the  government  was  constrained  to  reduce 
the  rate  on  grain  for  distances  over  one  hundred  and  twenty-five 
miles,  and  a  sliding  scale  was  put  in  force  which  afforded  some  relief 
and  permitted  the  grain  from  eastern  Germany  to  move  into  the 
western  portion  of  the  empire  by  rail ;  but  the  rate  was  still  much 
too  high  and  much  more  than  the  traffic  would  bear.  The  farmers  of 
southern  and  western  Germany  protested  that  they  were  being 
deprived  of  their  geographical  advantage  and  when,  in  1894,  the 
government  desired  to  make  a  commercial  treaty  with  Russia,  the 
southern  provinces,  whose  representatives  held  the  balance  of  power, 
refused  to  assent  to  it  unless  the  rates  on  grain  were  changed.  The 
Russian  treaty  was  very  important  and  so  an  order  was  issued 
restoring  the  uniform  rate  on  grain  of  a  certain  sum  per  ton  per 
mile,  regardless  of  the  length  of  the  haul.  The  result  was  that  the 
treaty  with  Russia  was  promptly  authorized. 

At  the  same  time,  there  was  a  tariff  on  grain  of  $8.75  per  ton 
and  all  grain  imported  into  the  German  Empire  was  required  to 
pay  $8.75  to  the  government,  so  the  government  allowed  to  the 
farmers  of  eastern  Germany  a  bounty  of  $8.75  per  ton  on  all  grain 
exported,  to  enable  them  to  realize  the  same  price  for  their  grain 
that  the  farmers  in  western  and  southwestern  Germany  received, 
the  latter  price  being  regulated  by  the  cost  of  imported  grain  at  the 
border,  plus  the  tariff. 

This  illustrates  the  result  in  Germany  of  a  government  regula- 
tion of  rates  which  does  not  recognize  the  necessity  of  limiting  the 
rate  to  what  the  traffic  will  bear,  but  rests  upon  the  principle  that 
each  community  is  entitled  to  the  advantage  resulting  from  its  geo- 
graphical location. - 

If  the  strict  rule  of  making  the  rate  per  ton  per  mile  the  same 
for  every  movement,  whether  the  haul  is  long  or  short,  be  modified 
by  adopting  a  sliding  scale,  it  necessarily  follows  that  commodities 
can  be  moved  from  the  place  of  production  to  the  market  for  much 
less  if  they  go  in  a  single  through  shipment  than  if  they  go  to  an 
intermediate  dealer  and  are  then  reshipped  by  him.  The  total  charge 
for  a  long  haul  will  be  less  than  the  total  charge  for  the  movement 
to  the  same  destination  by  means  of  two  shorter  hauls.    This  tends 

2  See  testimony  of  Prof.  Hugo  Meyer  before  the    Interstate  Commerce  Committee  of  the 
United  States  Senate  in  1905. 

[636] 


Limitations  Upon  National  Regulation  of  Railroads  25 

to  centralize  trade.  Under  the  S3^stem  of  rate  making  in  this  country 
with  the  privileges  of  stop-over  and  reshipment  at  the  balance  of  the 
through  rate,  and  the  basing  point  system,  the  jobber  in  the  interior 
is  able  to  compete  with  the  shipper  at  the  seaboard ;  merchants  far 
removed  from  the  point  of  production  of  the  commodity  they  handle 
are  able  to  sell  in  competition  with  dealers  residing  in  the  locality 
where  the  commodity  is  produced ;  and  our  group  rates  extend  the 
markets  for  the  products  of  our  enterprise. 

We  often  hear  the  expression  that  the  railroads  have  "anni- 
hilated distance"  in  this  country.  It  is  the  system  of  rate  making 
that  has  annihilated  distance,  and  it  is  the  annihilation  of  distance 
by  the  system  of  rate  making  of  the  railroads  that  is  responsible 
very  largely  for  our  tremendous  industrial  development.  In  Ger- 
many, the  railroads  do  not  have  that  effect  because  their  system  of 
rate  making  does  not  recognize  the  laws  of  trade  and  competition. 
Suppose  there  had  been  maintained  in  this  country  for  the  last  forty 
years,  under  government  regulation,  a  system  of  strictly  distance 
tariff's,  there  would  have  been  no  substantial  industrial  development 
in  the  states  between  the  Mississippi  River  and  the  Rocky  Moun- 
tains. The  reduction  of  rates  on  grain  from  the  prairies  to  the  East, 
to  a  point  where  they  would  stimulate  production  and  move  the 
product,  resulted  in  a  reduction  in  the  value  of  farm  lands  in  the 
New  England  and  Middle  States  and  an  increase  in  the  value  of 
farm  land  in  the  West,  but  this  has  not  proved  to  be  destructive  to 
the  industrial  growth  of  New  England  and  the  Middle  States.  The 
increase  in  the  farm  values  in  the  West  has  induced  immigration  to 
these  farms,  and  the  consequence  has  been  a  wide  extension  of  the 
markets  for  the  manufacturers  of  the  East.  The  policy  of  the  rate 
makers  has  been  to  build  up  the  industries  on  their  respective  lines 
by  making  rates,  as  far  as  possible,  that  would  permit  the  products 
of  those  industries  to  be  sold  far  and  wide  in  competition  with  sim- 
ilar products  of  industries  situated  in  remote  parts  of  the  country. 

It  may  be  said  that  this  is  no  argument  against  government 
regulation.  We  do  not  make  the  statement  primarily  as  an  argu- 
ment against  government  regulation.  What  we  do  say  is  that  any 
effort  at  government  regulation  must  recognize  these  principles  and 
follow  the  plan  which  the  railroads  themselves  have  adopted,  or  it 
will  do  more  harm  than  good.  But  it  is  hardly  likely  that  the  gov- 
ernment will  be  able  to  regulate  rates   comprehensively,  with  as 

[637] 


2  6  The  Annals  of  the  American  Academy 

much  success  as  the  railroad  managers  themselves.  Two  great 
forces  which  control  the  rate  makers  to-day  are:  (i)  the  desire  to 
stimulate  production  along  their  respective  lines,  and  (2)  the  con- 
test of  trade  centers  for  supremacy.  These  are  competitive  forces 
of  a  powerful  nature,  and  any  governmental  body  which  should 
undertake  to  fix  all  the  rates  for  transportation  in  this  country 
would  probably  be  compelled  to  ignore  the  first,  and  would  be  likely 
to  be  accused  of  being  influenced  by  political  considerations,  if  it 
undertook  to  give  any  recognition  to  the  second. 

III.     Li}iiitafio)is  by  Comuion  Laiv. 

We  have  said  that  there  are  two  classes  of  regulations  which 
control  the  rate  makers  of  this  country,  the  first  being  limitations 
by  economic  laws.  Another  class  of  limitations  is  made  up  of  those 
imposed  by  common  law. 

It  has  been  the  rule  of  the  common  law  from  time  immemorial 
that  when  one  devotes  his  property  to  a  use  which  is  of  such  a 
nature,  by  reason  of  public  aid  in  its  investment  or  by  reason  of  the 
monopolistic  character  of  the  service  rendered,  that  it  is  said  to  be 
impressed  with  a  public  interest,  he  is  bound  to  content  himself  with 
charges  that  are  reasonable.  So,  if  a  man  erected  in  a  harbor  a  wharf 
or  crane  which  by  reason  of  a  grant  of  public  aid  in  its  construction, 
or  by  reason  of  the  fact  that  there  was  no  other  crane  in  the  harbor, 
could  be  said  to  be  impressed  with  a  public  interest,  it  was  held  that 
he  must  limit  his  charges  to  such  as  would  constitute  a  reasonable 
reward  for  the  service  rendered.  In  comparatively  modern  times 
and  particularly  in  this  country  in  the  period  of  the  Granger  cases, 
there  was  an  attempt  to  regulate  charges  for  public  utilities  by  legis- 
lation and  it  has  been  held  to  be  a  rule  of  common  law  that  while  the 
charges  for  such  public  utilities  must  be  limited  to  such  as  constitute 
reasonable  compensation  for  the  services  rendered,  at  the  same  time 
they  may  not  be  reduced  by  legislation  to  a  point  below  what  will 
yield  a  fair  return  to  the  owner  upon  his  investment.  The  existing 
national  legislation  upon  the  subject  of  rates  has  done  little  more 
than  to  declare  the  principles  of  the  common  law,  which  are  more 
than  two  centuries  old.  And  after  all,  reasonableness  is  really  the 
sole  test  of  the  validity  of  a  rate  for  transportation  by  a  common 
carrier.  This  is  the  limitation  to  which  we  now  refer, — that  rates 
shall  be  reasonable. 

[638] 


Limitations  Upon  National  Regulation  of  Railroads  27 

It  becomes  important  to  inquire  what  are  the  considerations 
which  control  in  a  determination  of  the  question  of  reasonableness. 
We  have  already  noted  the  fact  that  there  may  be  a  wide  range  of 
rates  for  the  performance  of  a  given  transportation  service  within 
which  any  rate  charged  will  be  held  to  be  reasonable.  The  lowest 
will  be  the  minimum  and  the  highest  will  be  the  maximum.  The 
question  of  what  is  the  minimum  rate  which  will  be  held  to  be  rea- 
sonable, generally  arises  upon  the  complaint  of  the  carrier,  while 
the  question  of  what  is  the  maximum  rate,  usually  arises  on  com- 
plaint of  some  customer  of  the  carrier,  or  on  complaint  of  some 
public  officer,  and  the  considerations  which  control  in  determining 
the  two  questions  are  as  far  apart  as  the  different  points  of  view. 

First,  then,  in  a  review  of  legislative  action,  what  will  be  held 
unreasonable  upon  complaint  of  the  carrier?    What  is  the  minimum? 

It  has  been  held  by  the  courts  that  a  railroad  company  is 
entitled  to  charge  rates  which  will  enable  it  to  pay  its  legitimate 
operating  expenses,  taxes,  the  cost  of  maintenance,  and  interest  upon 
money  borrowed  and  actually  devoted  to  the  enterprise,  and  some 
return  upon  the  investment  represented  by  the  capital  stock.  Some 
cases  hold  that  the  carrier  is  not  only  entitled  to  all  these  things  and 
some  return  upon  the  investment  represented  by  the  capital  stock, 
but  a  fair  return. 

It  may  happen  that  the  property  devoted  to  the  enterprise  at  the 
time  of  the  investigation  of  the  question  of  the  reasonableness  of  the 
rates  may  be  worth  much  more  than  it  originally  cost,  or  much  less, 
and  some  courts  hold  that  what  the  carrier  is  entitled  to  is  a  return 
upon  such  value  at  the  time  of  the  investigation,  regardless  of  the 
original  cost. 

In  the  application  of  any  of  these  rules  difficulties  are  likely  to  be 
encountered,  for  it  is  uncertain  what  deductions  are  to  be  made 
from  the  gross  earnings  on  account  of  operating  expenses  and  main- 
tenance, and  it  is  also  uncertain  how  we  are  to  determine  the  actual 
amount  of  money  borrowed  and  devoted  to  the  enterprise  and  how 
we  are  to  determine  the  amount  of  actual  investment  represented  by 
the  capital  stock ;  and  if  we  adopt  the  other  rule,  allowing  value  to 
determine  the  investment,  it  is  not  clear  what  method  is  to  be 
employed  to  measure  the  value.  When  a  proper  method  has  been 
adopted*  for  the  determination  of  the  extent  of  the  investment,  it 
should  be  held,  upon  the  complaint  of  a' carrier,  that  he  is  entitled 

[639] 


28  The  Annals  of  the  American  Academy 

to  a  fair  return  upon  his  investment.  This  fixes  the  minimum  of 
reasonableness. 

Second,  in  a  review  of  legislative  action,  what  will  be  held  un- 
reasonable upon  the  complaint  of  a  shipper  ?    What  is  the  maximum  ? 

Upon  the  complaint  of  a  shipper,  the  net  revenue  of  the  carrier 
has  nothing  to  do  with  the  determination  of  the  question  of  reason- 
ableness. No  shipper  has  the  right  to  complain  of  a  rate  or  a 
schedule  of  rates  simply  because  the  carrier  is  able  to  pay  large 
dividends.  As  long  as  the  rates  charged  do  not  exceed  the  value 
of  the  service  rendered,  the  shipper  has  no  right  to  complain ;  and 
the  value  of  the  service  rendered  is  determined  by  commercial  con- 
siderations, one  of  which  is  the  cost  of  the  service.  Shippers  are  apt 
to  forget  that  there  has  been  for  a  number  of  years  in  this  country 
a  general  upward  tendency  in  the  wages  paid  to  the  men  and  in 
the  price  of  almost  all  kinds  of  supplies.  Higher  speed  is  demanded. 
Better  accommodations  for  passengers  are  being  constantly  provided. 
Expensive  safety  appliances  have  been  required.  All  these  tend 
to  increase  the  value  of  the  service,  and  yet  there  are  few  persons  who 
are  willing  that  there  should  be  any  corresponding  increase  in  the 
rates.  On  the  contrary,  there  is  a  constant  tendency  downward  in 
passenger  rates  wherever  they  are  subject  to  state  regulation,  and 
the  slightest  increase  in  the  average  freight  rate  per  ton  per  mile  in 
the  United  States  taken  as  a  whole  and  averaged  for  a  year,  is 
viewed  with  suspicion  and  furnishes  a  text  for  an  outburst  of  pas- 
sion against  the  railroads.  Upon  the  complaint  of  a  shipper  it  should 
be  held  that  the  carrier  is  entitled  to  the  fair  value  of  the  service 
rendered.    This  fixes  the  maximum. 

A  correct  judgment  as  to  the  value  of  the  service  rendered  in 
any  given  movement  of  freight  depends  upon  the  commercial  con- 
ditions surrounding  the  movement,  and  it  often  happens  that  a 
complaint  that  rates  are  unreasonable  may  require  for  its  proper 
adjudication  a  careful  inquiry,  not  only  into  the  business  of  the 
road  that  makes  them,  but  also  into  the  business  of  other  roads, 
whose  rates  are  supposed  by  comparison  to  show  the  injustice  of 
the  rates  complained  of. 

Between  these  two  points :  the  rates  which  will  yield  a  return 
upon  the  investment  as  the  minimum,  and  the  rates  which  will  not 
exceed  the  value  of  the  service  rendered  as  the  maximum,  there 
may  be,  and  often  is,  a  wide  range,  within  which  the  carrier  is  at 

[640] 


Limitations  Upon  National  Regulation  of  Railroads  29 

liberty  to  prescribe  the  rates  under  the  full  protection  of  the  law. 
And  within  this  range  it  has  been  judicially  determined  that  carriers 
are  justified  in  charging  less  for  a  long  haul  than  for  a  shorter  haul 
over  the  same  line  in  the  same  direction,  the  shorter  haul  being 
included  within  the  longer  distance,  in  cases  where  competition  con- 
trols the  rate  to  the  longer  distance  point;  and  that  carriers  may 
charge  less  for  the  inland  portion  of  the  transportation  of  export 
or  import  freight  than  is  charged  for  a  similar  movement  of 
domestic   freight. 

It  is  probably  true  that  these  practices,  both  of  which  have  been 
sustained  by  the  courts,  constitute  the  real  basis  of  a  great  majority 
of  the  supposed  grievances  of  which  the  shippers  complain,  but 
these  practices  are  forced  upon  the  carriers  by  trade  conditions,  and 
they  are  practices  which  distinguish  the  railroad  business  of  this 
country  from  the  railroad  business  in  a  country  where  trade  con- 
ditions are  ignored  by  government  regulations,  and  where  railroad 
construction  and  development  is  practically  at  a  standstill.  These 
are  the  practices  which  annihilate  distance  and  tend  to  decentralize 
the  population.  The  prohibition  of  these  practices  by  a  statute, 
upon  the  demand  of  the  persons  living  nearest  the  great  markets 
that  they  should  be  given  the  advantage  to  which  their  geographical 
■location  is  supposed  to  entitle  them,  would  stop  the  development  of 
the  interior  and  cripple  the  railroads  and  would  produce  restrictions 
upon  the  revenue  of  the  carriers,  which  in  many  cases  would  prob- 
ably be  held  by  the  courts  to  be  unreasonable ;  and  would  impose, 
in  other  cases,  rates  beyond  what  the  traffic  would  bear. 

The  present  adjustment  of  railroad  rates  is  most  complicated, 
but  it  is  the  result  of  the  operation  of  economic  laws.  The  railroad 
managers  have  not  made  rates  for  the  transportation  of  freight  at 
will.  They  have  been  forced  to  limit  the  rates  to  what  the  traffic 
will  bear, — using  that  expression,  not  in  the  offensive  sense,  as  a 
description  of  a  maximum  of  burden  to  which  another  straw  could 
not  be  added  without  disaster,  but  in  the  sense  in  which  it  is  used 
among  traffic  managers,  as  representing  a  rate  which  will  stimulate 
production  and  move  the  product  and  at  the  same  time  yield  a  fair 
return  to  the  carrier  upon  his  investment  in  the  enterprise.  Rates 
thus  adjusted  will  stand  the  judicial  test  for  reasonableness,  and  no 
state  or  federal  authority  should  deprive  the  carrier  of  the  revenue 
which  such  rates  will  afford. 


FEDERAL  CONTROL  OF  INTERSTATE  COMMERCE 


By  Harry  Earl  Montgomery, 
Buffalo,  N.  Y. 


The  Republican  administration,  voicing  the  demand  of  the 
American  people,  has  determined  to  give  to  the  federal  government 
power  to  regulate  and  control  corporations  engaged  in  interstate 
commerce.  The  various  plans  presented  and  the  bills  introduced  at 
the  last  session  of  Congress  have  been  criticised  so  severely  by 
students  of  economics  that  the  first  lesson  in  remedial  legislation  is 
being  learned, — the  lesson  of  what  not  to  do.  So  clearly  have  the 
defects  of  the  proposed  remedies  been  shown,  that  a  straight  and 
narrow  pathway  is  appearing  which  will  lead,  unless  blocked  b}^ 
political  or  other  influences,  to  the  passage  of  a  law  which  will  pre- 
serve the  good  features  and  at  the  same  time  eliminate  the  evils 
now  existing  in  corporations  engaged  in  interstate  trade. 

The  bidding  of  the  states  for  the  chartering  of  corporations  has 
created  a  body  of  laws  which  confer  great  powers — powers  our  fore- 
fathers never  dreamed  would  be  given  to  any  group  of  individuals — 
to  those  who  are  willing  to  pay  a  small  incorporation  tax  in  exchange 
for  such  privileges.  So  little  supervision  and  control  are  now  exer- 
cised by  the  state  governments  that  corporations  are  able,  through 
the  secrecy  which  surrounds  their  actions,  to  override  the  law  and  to 
some  extent  to  be  creatures  subject  only  to  the  washes  and  desires 
of  the  corporate  managers.  The  fvitility  of  state  control  has  become 
so  apparent  that,  much  against  their  wishes,  our  people  are  com- 
pelled to  turn  for  protection  to  the  federal  government. 

The  constitution  of  the  United  States,  by  the  third  clause  of 
Article  i,  Section  VIII,  has  reserved  to  Congress  the  power  "to 
regulate  commerce  with  foreign  nations  and  among  the  several 
states,"  and  has  thereby  vested  in  Congress  the  power  to  enact 
laws  which  will  adequately  control  and  regulate  the  agencies  engaged 
in  interstate  trade.     So  well  convinced  are  the  authorities  at  Wash- 

[642] 


Federal  Control  of  Interstate  Commerce  31 

ington  that  Congress  possesses  such  power,  that  Commissioner  Gar- 
field, of  the  Bureau  of  Corporations,  in  his  first  report,  has  said, 
that  "It  may  be  considered  as  estabHshed"  that  under  these  consti- 
tutional powers  Congress  may : 

(i)  Create  corporations  as  a  means  of  regulating  interstate 
commerce. 

(2)  Give  to  such  corporations  the  power  to  engage  in  inter- 
state or  foreign  commerce. 

(3)  Prohibit  any  other  corporations  or  individuals  from  engag- 
ing in  the  same. 

(4)  As  a  condition  precedent  to  the  grant  of  such  corporate 
powers,  lay  any  restrictions  it  chooses  upon  the  organization's  con- 
duct or  management  of  such  corporation. 

(5)  Tax  interstate  commerce  at  will  and  the  instrumentalities 
and  corporations  engaged  therein. 

(6)  Provide  regulations  for  the  carrying  on  of  interstate  com- 
merce generally  and  in  such  local  afifairs  as  are  now  left  to  the 
states  in  the  "silence  of  Congress"  tmder  the  principle  established 
in  Cooky  vs.  Port  Wardens  (12  How.  299),  and  in  the  carrying  out 
of  such  powers  it  may  use  any  or  all  means  "which  are  appropriate, 
which  are  plainly  adapted  to  that  end,  which  are  not  prohibited,  but 
consistent  with  the  letter  and  spirit  of  the  constitution." 

Congress  having  the  power  to  act  and  the  administration  having 
determined  that  such  power  shall  be  used  to  the  curbing  of  cor- 
porate greed  and  corporate  discrimination,  it  becomes  the  duty  of 
every  American  to  give  his  best  thought  to  the  consideration  of  the 
plans  suggested  in  order  that  the  combined  wisdom  of  the  American 
people  may  be  brought  to  bear  on  the  preparation  of  a  federal  incor- 
poration act.  To  such  an  end  the  following  plan  is  presented  as  a 
contribution  to  this  discussion : 

First.  The  power  and  authority  of  the  Bureau  of  Corporations 
in  the  Department  of  Commerce  and  Labor  should  be  enlarged  so 
as  to  include  the  right  to  grant  charters  of  incorporation  to  all  who 
seek  to  engage  in  interstate  or  foreign  commerce.  This  bureau 
should  not  only  have  this  power,  but  all  corporations,  joint  stock 
companies  and  other  forms  of  organizations  now  existing  or  which 
hereinafter  may  be  chartered  by  a  state  government,  should  be 
prohibited  from  engaging  in  interstate  and  foreign  commerce  until 
chartered  by  this  bureau.     Unless  this  bureau  has  the  sole  right  to 

[643] 


32  The  Annals  of  the  American  Academy 

incorporate  associations  engaged  in  interstate  or  foreign  commerce, 
the  effect  of  this  plan  would  be  defeated.  Sub-companies  would  be 
organized  in  the  different  states,  with  or  without  the  intervention  of 
a  holding  company,  and  would  not  be  subject  to  the  control  and 
regulation  of  this  bureau. 

This  bureau  should  have  not  only  the  sole  right  to  incorporate 
associations  engaged  in  interstate  and  foreign  commerce,  but  it 
should  have  absolute  charge  and  complete  control  of  its  corporate 
children. 

Second.  Every  corporation  incorporated  by  this  bureau  should 
pay  an  organization  tax  of  one-tenth  of  one  per  cent,  upon  the 
amount  of  capital  stock  authorized,  and  a  like  tax  upon  any  sub- 
sequent issue. 

The  average  organization  tax  in  the  various  states  is  about 
one-tenth  of  one  per  cent.  Experience  has  shown  that  this  is  the 
rate  which  incorporators  are  willing  to  pay  for  the  privilege  of 
owning  a  corporate  charter  and  the  amount  that  should  be  charged 
for  giving  such  privilege. 

The  incorporation  tax  should  be  so  low  as  to  deter  no  group 
of  men  from  carrying  on  business  in  a  corporate  capacity ;  for  it 
is  to  corporations,  with  their  large  aggregation  of  capital,  that  we 
must  look  for  the  development  of  our  country.  Corporations,  when 
backed  by  large  capital,  expert  skill  and  great  business  ability,  have 
often  conferred  material  benefit  on  the  community  at  large,  and 
almost  invariably  insured  the  promotion  of  prosperity  on  a  durable 
basis.  They  have  furnished  the  people  with  many  of  the  commodi- 
ties of  civilized  existence  at  much  lower  prices  than  formerly,  not 
only  without  decreasing  the  wages  of  labor,  but  in  many  instances 
increasing  them,  and  eventually  extending  the  field  for  a  larger 
number  of  employees.  India  rubber  goods,  tobacco,  leather  and 
a  great  variety  of  other  commodities  are  cheaper  than  at  any 
former  period  of  our  country's  existence ;  and  wages  are  higher 
to-day  than  they  have  ever  been,  except  in  war  times.  Without  cor- 
porations the  great  railway  systems  of  our  country  could  not  have 
obtained  the  capital  required  to  cover  our  land  with  a  network  of 
rails  and  could  not  carry  freight  and  passengers  at  the  low  rates 
charged  to-day. 

Without   corporations   our   manufacturers   could   not   compete 
with  the  corporations  of  England,  France  and  Germany  in  the  race 

[644] 


Federal  Control  of  Interstate  Commerce  33 

for  the  Asiatic  and  the  South  American  markets.  To  extend  our 
markets,  and  thereby  provide  an  outlet  for  our  surphis  products, 
and  thus  give  constant  employment  to  our  workers  and  toilers,  is 
the  crying  necessity  of  our  economic  life ;  and,  in  order  to  obtain 
these  markets,  giant  corporations  must  be  met  and  conquered  by 
more  powerful  and  far  greater  aggregations  of  capital,  organized 
in  the  form  of  corporations. 

Third.  The  stockholders  and  directors  of  corporations  organized 
under  the  Corporation  Bureau  should  be  personally  liable  only  to 
the  following  extent: 

The  stockholders  should  be  personally  liable, — 

(a)  To  creditors,  to  an  amount  equal  to  the  amount  unpaid 
on  the  stock  held  by  each  stockholder. 

(b)  To  the  laborers,  servants  and  employees  other  than  con- 
tractors, for  services  performed  by  them  for  such  corporation. 

The  directors  should  be  personally  liable, — • 

(a)  For  declaring  dividends  from  any  fund  other  than  from 
the  surplus  profits  arising  from  the  business  of  the  corporation. 

(b)  For  loaning  corporation  money  to  any  stockholder,  or  con- 
senting to  the  corporation  discounting  any  note  or  other  evidence  of 
debt. 

(c)  For  violating  any  of  the  provisions  of  this  act  or  any  law 
of  the  United  States. 

The  liability  of  stockholders  and  directors  of  corporations, 
except  for  violations  of  law  or  breach  of  trust,  should  be  so  limited 
as  to  deter  no  one  from  contributing  his  money  to  corporate  enter- 
prises. The  provisions  of  this  plan  provide  sufficient  protection  to 
creditors  and  to  the  general  public,  and  no  additional  burdens  to 
those  hereinbefore  set  forth  need  be  placed  on  corporate  stockholders 
and  corporate  directors. 

Fourth.  The  real  and  tangible  personal  property  owned  by 
corporations  chartered  by  this  bureau  should  be  locally  assessed 
and  taxed  in  the  civic  divisions  of  the  states  in  which  the  property 
is  located,  the  same  as  the  real  and  personal  property  owned  by 
individvtals.  No  higher  or  different  rate  of  taxation  and  no  other 
or  different  method  of  assessment  should  be  applied  to  such  corpo- 
rations than  is  applied  to  corporations  organized  under  the  state  law 
or  to  individual  citizens. 

The  reason  for  such  local  taxation  is  twofold :  First,  the  local 

[645] 


34  The  Annals  of  the  American  Academy 

authorities  have  a  better  knowledge  of  the  value  of  property  and 
better  facilities  for  obtaining  this  knowledge,  and  would,  therefore, 
make  fewer  mistakes,  than  a  board  of  examiners  appointed  from 
Washington  and  not  residents  of  the  locality  where  such  property  is 
located ;  secondly,  the  cities  and  counties  of  the  states  depend  largely 
for  their  support  upon  the  taxes  levied  upon  the  property  of  cor- 
porations located  within  their  jurisdiction,  and  to  withdraw  this 
revenue  would  cause  confusion  and  would  increase  the  burdens  of 
the  local  taxpayers. 

Fifth.  Every  prospectus  or  advertisement  issued  or  published 
with  a  view  of  obtaining  subscriptions  for  shares  or  for  bonds  of  a 
corporation,  organized  or  to  be  organized  by  this  bureau,  should 
give  full  details  as  to  its  organization ;  the  contracts  into  which  the 
promoters  or  organizers  have  entered ;  the  earnings  for  the  two 
previous  years  of  all  underlying  corporations ;  the  amount  of  money 
to  be  used  for  preliminary  expenses  and  the  amount  to  be  reserved 
for  working  capital ;  and  all  information  necessary  for  safe  and  in- 
telligent investment.  For  a  false  statement,  or  the  issuing  of  a 
prospectus  which  does  not  make  a  full  disclosure  of  the  corporate 
affairs,  the  promoters  and  their  associates,  the  officers  and  their 
agents,  should  be  legally  liable,  both  civilly  and  criminally. 

This  knowledge  is  at  present  inaccessible.  The  investor  who 
puts  money  into  a  giant  corporation  must  guess  as  best  he  can 
what  property  he  is  getting,  and  the  guess  is  often  a  bad  one  for 
him.  The  making  public  of  the  above-mentioned  facts  will  remove 
the  gravest  evils  from  stock-watering.  If  the  investor  knows  that 
there  is  only  one  dollar  of  property  back  of  every  three  dollars  of 
stock  and  bonds,  which  is  the  case  with  so  many  corporations  whose 
shares  are  listed  at  the  exchanges  to-day,  he  can  buy  the  securities 
at  a  discount  sufficient  to  make  his  investment  safe. 

When  appeals  are  made  to  the  public  to  subscribe  to  the  capital 
of  undertakings,  it  should  be  made  obligatory  on  the  corporate  pro- 
moters, organizers  and  officers  to  disclose  every  fact  known  to 
them  and  unknown  to  the  public,  in  order  that  everything  be  open 
and  above  board,  and  the  parties,  public  and  promoters  alike,  may 
deal  with  equal  information  in  regard  to  the  organization  and 
the  conduct  of  such  companies. 

Corporations  now  in  existence  and  engaged  in  interstate  or 
foreign  trade,  and  desiring  to  obtain  a  charter  from  this  bureau, 

[646] 


Federal  Control  of  Interstate  Commerce  35 

should  furnish  to  the  commissioner  a  detailed  history  of  its  organiza- 
tion and  an  itemized  list  of  its  assets  and  liabilities,  a  summary 
statement  of  which  should  be  published  in  such  newspapers  as  may 
be  designated  by  the  commissioner.  By  the  possession  of  this  report 
the  bureau  will  be  placed  in  the  position  by  which  it  could  investi- 
gate intelligently  the  affairs  of  the  corporation  and  be  able  rightly 
to  supervise  its  future  corporate  life. 

Sixth.  Every  corporation  should  annually,  during  the  month 
of  January,  make  and  file  with  the  corporation  department  a  state- 
ment as  of  the  first  day  of  January,  verified  by  the  oath  of  its 
president  or  vice-president  and  its  secretary  or  treasurer,  fully  set- 
tine:  forth  the  following  information : 

( 1 )  The  name  of  the  corporation  and  the  place  and  date  of  its 
incorporation. 

(2)  The  names,  residence,  and  business  or  occupation  of  the 
officers  and  directors  of  the  corporation. 

(3)  The  business  in  which  the  corporation  is  actually  en- 
gaged, and  the  states,  territories,  districts,  or  insular  possessions  in 
which  it  is  engaged  in  transacting  such  business,  specifying  a  person 
residing  in  each  such  state  and  territory,  who  shall  be  designated  by 
such  corporation  as  its  legal  representative  upon  whom  service  of 
any  legal  process  or  notice  issuing  out  of  any  court  or  of  the  cor- 
poration department  may  be  made. 

(4)  The  cash  value  of  the  assets  of  the  corporation  and  the 
nature  and  character  of  such  assets. 

(5)  The  amount  of  indebtedness  of  the  corporation,  and,  if 
such  indebtedness  is  secured,  in  what  manner. 

(6)  A  statement  in  detail  of  all  bonds  and  mortgages  issued 
by  and  outstanding  against  said  corporation,  showing  when  said 
bonds  were  issued,  when  the  same  become  due,  and  the  consideration 
received  by  the  corporation  for  said  bonds  in  property  or  money,  and, 
if  in  property,  the  nature,  situation  and  cash  value  of  such  property; 
and  in  case  of  mortgages,  a  statement  showing  the  date  of  such 
mortgages,  the  date  of  their  maturity,  the  property  covered  thereby, 
and  the  cash  value  thereof. 

(7)  The  amount  of  shares  of  stock  or  bonds  owned  or  con- 
trolled by  said  corporation  in  any  other  corporation,  and  the  propor- 
tion of  the  entire  capital  stock  which  such  holding  represents,  both  in 
the  reporting  corporation  and  the  corporation  whose  shares  it  holds. 

[647] 


36  The  Annals  of  the  American  Academy 

(8)  The  amount  of  assets  and  liabilities  of  any  corporation  in 
which  such  reporting  corporation  holds  stock  or  bonds,  giving  the 
character  of  such  assets  and  liabilities  and  of  what  such  assets  and 
liabilities  consist. 

(9)  The  number  of  shares  of  the  capital  stock  of  the  cor- 
poration which  have  been  actually  issued,  and  the  amount  and  value 
of  the  consideration  actually  received  into  the  treasury  of  the  cor- 
poration for  such  shares ;  where  the  payment  was  made  in  money, 
then  the  amount  in  money  per  share ;  where  such  payment  was  made 
in  property,  a  description  of  such  property  as  to  location,  character, 
and  the  cash  value  thereof. 

(10)  That  it  is  not  a  party  to  any  contract  or  agreement  for 
the  purpose  of,  or  which  operates  as,  a  restraint  of  trade  or  com- 
merce, or  which  results  in  giving  to  either  corporation  a  monopoly 
of  trade  in  any  article  of  common  use  or  utility,  or  which  results  in 
any  business  or  commercial  advantage  over  other  corporations  or 
persons  engaged  in  like  trade,  business,  or  commerce,  by  virtue  of 
such  agreement  or  contract.  That  it  is  not  a  party  to  any  pooling 
plan,  agreement,  or  contract  with  any  other  corporation  for  any 
purpose  which,  when  carried  into  effect,  would  create  a  monopoly 
of  the  trade  or  business  in  which  such  corporation  or  corporations 
is  engaged,  or  in  any  degree  lessen  or  destroy  competition  between 
corporations  or  between  corporations  and  natural  persons  engaged 
in  business,  trade,  or  commerce  of  a  similar  character. 

(11)  That  no  part  of  the  capital  stock  of  the  corporation  is 
owned,  controlled,  or  voted  by  any  other  corporation,  or  by  the 
officers  of  any  other  corporation. 

(12)  That  the  corporation  does  not  have  or  receive  any  rebate, 
deduction,  discrimination,  drawback,  preference,  or  advantage  in 
rates  of  transportation  or  anything  incident  to  such  transportation 
from  any  common  carrier — railroad,  pipe  line,  water  carriers  or 
other  transportation  company — by  which  its  products  are  or  may 
be  transported,  which  give  to  it  any  advantage  or  profit  directly 
or  indirectly  as  against  any  other  person  or  corporation  who  ships 
or  desires  to  ship  products  of  a  similar  character  over  such  trans- 
portation lines  under  like  conditions ;  or  if  any  such  have  been 
received  or  given,  then  such  corporation  shall  state  when,  from 
whom,  on  what  account,  and  in  what  manner  it  was  received,  mak- 
ing a  detailed  exposition  of  the  entire  transaction. 

[648] 


Federal  Control  of  hiterstate  Commerce  37 

(13)  If  a  corporation  is  a  railroad  or  transportation  company, 
or  a  common  carrier  of  any  kind,  that  during  the  past  year  it  has  not 
granted  to  any  person  or  persons,  corporation,  or  company  any 
special  rates,  discriminations,  advantages,  or  preferences  whatsoever, 
neither  has  it  received  any  such. 

That  if  at  any  time  a  corporation,  organized  under  the  federal 
government  shall  fail  to  file  its  annual  report  as  herein  provided, 
or  shall  fail  to  give  the  information  required,  its  officers  should 
jointly  and  severally  be  personally  liable  to  the  United  States  in 
the  sum  of  one  thousand  dollars  per  day  for  every  day  it  transacts 
business ;  and  if  any  such  report  shall  contain  a  false  statement,  the 
officers  making  such  false  statement  should  be  subject  to  a  fine  or 
imprisonment,  or  both. 

The  object  of  compelling  the  making  and  filing  of  this  annual 
report  is  to  put  on  record  under  oath  two  of  the  officers  of  the  cor- 
poration in  order  that  the  department  may  have  an  additional  hold 
on  the  responsible  heads  of  the  corporation  for  violation  of  law. 
The  annual  examination  hereinafter  provided  will  enable  the  depart- 
ment to  verify  the  correctness  of  the  report  and  thus  ensure  the 
truthfulness  of  the  statements  contained  therein. 

Seventh.  The  commissioner  or  head  of  this  bureau,  through 
his  staff  of  examiners,  should  examine  annually  into  the  affairs  of 
all  corporations  chartered  by  his  department,  inspecting  their  books, 
agreements,  receipts,  expenditures,  vouchers,  records  of  meetings 
of  directors  and  of  stockholders,  and  report  the  condition  of  their 
aft'airs  as  of  the  first  of  January  of  each  year.  Power  should  be 
given  to  compel  the  attendance  of  witnesses  to  be  examined  under 
oath,  to  call  experts  to  testify  as  to  values,  and  to  require  the  pro- 
duction of  all  books,  papers,  contracts,  agreements  and  documents 
relating  to  any  subject  under  investigation,  no  matter  in  whose  pos- 
session or  in  what  part  of  the  United  States  or  of  its  dependencies 
such  documents  may  be.  The  claim  that  any  such  testimony  or 
evidence  may  tend  to  criminate  the  person  giving  such  evidence  or 
testimon}-  should  be  met  by  a  provision  that  any  such  evidence  or 
testimony  should  not  be  used  against  such  person  on  the  trial  of 
any  criminal  proceeding.  But  no  person  so  testifying  should  be 
exempt  from  prosecution  and  punishment  for  perjury  committed  in 
so  testifying.  And  if  it  should  be  found  that  a  corporation  is  over- 
capitalized, or  is  violating  any  anti-trust  or  other  law,  the  commis- 

[649] 


;iS  The  Annals  of  the  American  Academy 

sioner  of  the  corporation  bureau,  after  giving  to  the  corporation  sixty 
days'  written  notice  to  comply  with  the  laws,  should  place  the  evi- 
dence in  the  hands  of  the. Attorney-General,  who  should  immediately 
commence  an  action  to  annul  its  charter. 

The  commissioner  should  also  have  the  power  to  compel  cor- 
porations to  furnish,  from  time  to  time,  such  statements  in  regard 
to  the  conduct  of  the  corporate  business,  the  change  of  stock  inter- 
ests, the  financial  condition  of  the  company,  and  such  other  data 
as  may,  in  his  judgment,  be  necessary  to  a  complete  understanding 
of  the  business  and  the  condition  of  the  corporation. 

A  detailed  report  of  the  examination  of  the  property,  business, 
profits,  and  losses  of  every  corporation  chartered  by  this  bureau, 
should  be  made  each  year  and  kept  on  file  in  the  office  of  the  com- 
missioner. A  summary  statement  of  the  corporate  assets  and  liabil- 
ities, the  amount  of  stock  issued  and  the  amount  paid  thereon,  in 
cash  and  otherwise,  the  actual  amount  of  surplus,  and  the  nature 
and  mode  in  which  it  is  used  and  invested,  should  be  published  in 
a  government  paper,  designated  for  that  purpose,  and  in  one  news- 
paper published  in  the  county  where  the  principal  place  of  business 
of  such  corporation  is  located.  The  publication  of  such  facts  would 
in  no  wise  injure  the  corporation,  while  the  publication  of  a  detailed 
report  might  paralyze  or  destroy  the  business  done  by  corporations. 
It  is  well  known  that  a  corporation,  just  as  a  partnership  or  an  in- 
dividual in  business,  in  some  years  makes  money,  in  some  loses 
money,  and  in  others  comes  out  even,  but  in  the  average  comes  out 
ahead.  If  the  creditors  found  at  the  end  of  a  year  that  a  corpora- 
tion had  lost  money,  how  long  would  it  be  before  the  credit  of  that 
corporation  would  be  lost ;  how  long  before  the  banks  would  refuse 
to  renew  or  to  discount  its  paper;  how  long  before  the  creditors 
would  place  their  claims  in  judgment  and  force  the  corporation  into 
a  receivership  or  into  bankruptcy?  Great  care  should  be  taken  to 
protect  amply  the  rights  of  privacy,  while  at  the  same  time  care 
should  be  exercised  to  protect  the  public  by  giving  out  such  facts 
as  they,  as  creditors,  stockholders  and  prospective  investors,  are 
entitled  to  know. 

The  first  concern  of  the  government  which  grants  charters 
of  incorporation  ought  to  be  to  see  that  its  corporate  offsprings  are 
doing  a  legitimate  business  and  are  not  violating  any  of  the  laws. 
Its  second  concern  ought  to  be  the  giving  to  the  public  of  all  such 

[650] 


Federal  Control  of  Interstate  Commerce  39 

information  as  should  affect  the  reasonable  judgment  of  a  man  in 
determining  whether  he  should  or  should  not  invest  in  a  particular 
concern. 

These  obligations  on  the  part  u/  the  government  are  universally 
recognized,  but  the  means  to  be  employed  to  effect  these  ends  are 
still  a  matter  of  keen  discussion. 

Experience  has  abundantly  proved  that  it  is  not  practicable  to 
allow  corporations  to  issue  their  own  reports  without  the  existence 
of  a  board  of  inspection  to  verify  the  truth  of  the  statements  con- 
tained therein.  Such  a  plan  of  reporting,  without  such  inspection 
and  verification,  has  been  tried  by  the  various  states,  and  the  result 
has  been  that  the  reports,  if  not  so  meagre  as  to  be  of  no  practical 
value,  are  of  so  complex  a  nature  that  the  majority  of  persons  are 
incapable  of  understanding  or  properly  appreciating  them. 

As  a  matter  of  fact,  a  government  board  of  examiners  is  abso- 
lutely indispensable  for  the  realization  of  compulsory  publicity. 
With  such  a  board,  the  affairs  of  each  corporation  would  become 
known,  and  the  purchaser  of  bonds  and  of  stocks  could  rely  upon 
the  corporation  bureau  to  see  that  corporations  are  not  over- 
capitalized, and  that  they  are  doing  business  honestly  and  fairly  and 
within  the  provisions  of  law.  In  this  way  the  corporation,  the 
purchaser  of  corporate  bonds  and  of  stocks  and  the  general  public 
will  be  protected. 

If  the  so-called  "tobacco,"  "leather,"  "whiskey,"  "ice,"  "sugar," 
"steel"  and  "shipbuilding"  trusts  had  been  subjected  to  the  ordeal  of 
a  thorough  investigation  by  expert  accountants  and  their  true  finan- 
cial condition  laid  before  the  public,  a  large  number  of  serious  losses 
would  have  been  prevented  from  falling  upon  innocent  and  worthy 
people.  The  fact  that  industrials  as  well  as  railroad  and  transpor- 
tation companies  are  possessed  of  double  attributes,  of  jjublic  and 
private  nature  combined,  opens  the  way  to  abuse  of  official  power. 
The  favored  few  in  the  inner  confidence  of  the  managers  have 
advantages  in  the  general  market  to  which  they  are  not  justly 
entitled. 

The  investigation  of  the  refunding  committee  of  the  Pacific 
railroads  at  Washington  brought  out  the  evidence  from  one  of 
the  principal  witnesses  that  the  books  connected  with  the  construc- 
tion of  the  road  had  been  burned  or  destroyed  as  useless  trash, 
although  they  contained  the  record  of  transactions  involving  hun- 

[6sx] 


40  The  Aiuiah  of  the  American  Academy 

dreds  of  miilions  of  dollars,  a  record  which  became  absolutely 
necessary  to  a  fair  settlement  between  the  government  and  its 
debtors.  There  was  put  in  evidence  the  fact  that  a  certain  party 
in  interest  had  testified  before  another  committee  that  he  was  pres- 
ent when  $54,000,000  of  profits  were  divided  equally  among  four 
partners, — himself  and  three  others.  None  of  the  books  of  record 
containing  this  valuable  information  escaped  the  flames. 

The  investigation  of  various  railroad  corporations  has  shown 
that  some  of  the  managements  have  peculiar  methods,  if  not  delin- 
quencies, in  bookkeeping,  which  if  they  had  received  rigid  investi- 
gation and  the  guilty  parties  had  been  held  responsible  for  their  acts, 
many  of  the  great  railway  corporations  would  not  have  been  wrecked 
during  the  panic  of  1893-95. 

Such  annual  inspection  by  a  government  board  of  examiners 
would  prevent  a- repetition  of  these  evils  and  would  ensure  the  cor- 
rectness of  published  reports  and  prospectuses,  and  would  prove  a 
check  on  the  discriminations  which  have  built  up  and  destroyed  so 
many  corporations. 

"Under  the  present  industrial  conditions,"  Mr.  Garfield,  in  his 
report,  says,  "secrecy  and  dishonesty  in  promotion,  overcapitaliza- 
tion, unfair  discrimination  by  means  of  transportation  and  other 
rebates,  unfair  and  predatory  competition,  secrecy  of  corporate 
administration  and  misleading  or  dishonest  financial  statements  are 
generally  recognized  as  the  principal  evils." 

These  evils  would  in  a  large  measure  disappear  if  the  corporate 
managers  knew  that  the  government  by  an  annual  inspection  would 
bring  to  light  all  their  acts. 

The  government  which  gives  to  a  group  of  citizens  a  charter 
of  incorporation,  a  special  privilege,  an  advantage  they  did  not 
possess  as  individuals,  has  the  right  to  know  that  the  privilege  is 
not  being  used  unfairly  and  illegally.  If  a  corporation  is  legally 
organized  and  is  conducting  a  legitimate  business,  no  injury  will 
be  done  it  by  inspection. 

Eighth.  A  progressive  graded  tax  should  be  levied  on  the 
actual  net  profits  of  corporations  chartered  by  this  department 
above  6  per  cent.     Such  tax  might  be  graded  as  follows: 

i-io  of  the     ist  per  cent,  above  6  per  cent. 
1-9    of  the    2(1   per  cent,  above  6  per  cent. 

[652] 


Federal  Control  of  Interstate  Commerce  41 

1-8  of  the  3d  per  cent,  above  6  per  cent. 
1-7  of  the  4th  per  cent,  above  6  per  cent. 
1-6  of  the  5th  per  cent.,  above  6  per  cent. 
1-5  of  the  6th  per  cent,  above  6  per  cent. 
1-4  of  the  7th  per  cent,  above  6  per  cent. 
1-3  of  the  8th  per  cent,  above  6  per  cent. 
1-2  of  the  9th  per  cent,  above  6  per  cent. 
6-10  of  the  loth  per  cent,  above  6  per  cent. 
7-10  of  the  nth  per  cent,  above  6  per  cent. 
8-10  of  the  12th  per  cent,  above  6  per  cent. 
9-10  of  each  per  cent,  of  profits  above  18  per  cent. 

Each  corporation  is  rated  according  to  the  profits  made.  The 
corporate  charter  is  valned  exclusively  by  the  prosperity  of  the  cor- 
poration. A  tax  upon  the  profits  would  be  governed  by  actual 
results  and  be  equal  in  its  effect  upon  different  corporations,  and 
be  just  in  its  general  operation.  Whether  or  not  a  corporation  had 
a  special  privilege,  in  the  nature  of  a  monopoly  given  by  the  patent 
laws,  by  the  tariff,  by  a  special  franchise,  or  by  the  control  of  the 
market,  would  make  no  difference  in  the  laying  of  the  tax.  If  a 
corporation  possessed  any  of  these  privileges,  it  would  be  obliged  to 
pay  for  each  in  proportion  to  its  value,  as  evidenced  by  its  earning 
power.  A  corporation  should  be  permitted  to  earn  a  reasonable 
profit  on  its  assets.  If  this  permission  were  taken  away,  all  incen- 
tive to  carry  on  business  would  be  killed,  the  affairs  of  corporations 
would  be  wound  up,  and  the  people  would  be  compelled  to  face 
general  disaster,  the  like  of  which  the  world  has  never  known.  That 
the  percentage  of  profits  allowed  untaxed  should  be  liberal,  in  view 
of  the  risk  taken  by  the  investor,  no  one  would  question.  While  four 
per  cent,  may  be  the  average  value  of  capital,  we  would  suggest 
the  allowance  untaxed  of  six  per  cent,  of  actual  net  profits  on  the 
fair  m.arket  value  of  the  tangible  assets  of  the  corporation,  as  this 
percentage  would  be  large  enough  to  stimulate  business  and  not 
so  large  as  to  work  injustice  between  corporations  chartered  by 
this  bureau  and  corporations  chartered  by  the  various  states. 

It  is  reasonable  to  assume  that  corporations  will  make  all  the 
profits  they  dare ;  and  if  we  place  a  progressive  graded  tax  upon 
their  profits,  their  incentive  to  overcharge  and  increase  their  profits 
beyond  a  fair  amount  will  be  taken  away,  and  their  time,  thought 

[653] 


42  The  Annals  of  the  American  Academy 

and  energy  will  be  bestowed  in  bettering  the  quality  of  their  pro- 
ducts, in  extending  their  markets,  and  in  holding  their  place  in 
the  business  world.  Franchises,  special  privileges  and  tariff  pro- 
tection will  not  produce  the  valuable  monopolies  they  are  creating 
to-day,  for  upon  the  adoption  of  this  plan  of  taxation  the  monopolies 
will  not  be  allowed  to  yield  the  large  profits  that  are  now  enjoyed. 
If  a  corporation  has  to  pay" as  a  tax  9-10  of  each  per  cent,  of  profits 
above  18  per  cent.,  it  will  not  risk  the  losing  of  its  trade  for  the 
sake  of  making  so  small  a  percentage  of  profit,  and  the  people  will 
get  the  benefit  of  a  cheaper  price  and  a  better  article. 

Ninth.  In  determining  the  actual  net  profits  earned  by  a  cor- 
poration, the  board  of  examiners  should  annually  ascertain  the  fair 
market  value  of  the  tangible  assets  of  the  corporation,  not  taking 
into  consideration  the  franchises,  the  capital  stock,  or  its  bonds. 

This  value  ma}^  be  obtained  by  an  examination  of  the  officers 
of  the  corporation,  by  inspection  of  its  books,  and  by  expert  testi- 
mony. The  board  should  deduct  from  the  total  earnings  of  the 
corporation  the  necessary  and  reasonable  expenses  of  its  manage- 
ment, including  the  actual  amounts  spent  in  renewing  the  plant,  the 
cost  of  materials  purchased  and  used,  and,  in  order  to  avoid  double 
taxation,  the  taxes  paid  on  its  property  to  all  municipalities.  Having 
obtained  these  amounts,  the  board  should  by  ordinary  business 
methods  figure  the  percentage  of  profits  earned  in  relation  to  its  cor- 
porate assets. 

Tenth.  The  cost  of  running  the  corporation  bureau  should  be 
met  in  two  ways : 

(a)  By  the  incorporation  tax. 

(b)  By  charging  the  various  corporations  examined  an  amount 
sufficient  to  pay  the  salaries  and  the  expenses  of  the  corporate 
examiners.  The  amount  charged  would  only  be  about  ten  dollars 
a  day  for  the  time  spent  by  the  examiner  in  investigating  the  affairs 
of  a  corporation. 

If  the  bureau  was  conducted  on  economical  lines,  a  surplus 
ought  to  be  obtained  from  the  organization  tax  to  go  into  the  general 
fund ;  W'hile  the  amount  collected  as  a  tax  on  profits  could  go  to 
reduce  the  general  expenses  of  the  government. 

Eleventh.  Finally,  the  question  may  be  asked  whether  the  cor- 
poration bureau,  or  some  commission  or  interstate  court  should  be 

[654] 


Federal  Control  of  Interstate  Commerce  43 

given  power  to  review  and  order  changes  in  rates  and  to  investi- 
gate and  punish  the  giving  of  rebates  by  railroads  ? 

The  annual  simultaneous  inspection  of  railroads,  and  of  indus- 
trial corporations  proposed  in  the  foregoing  plan  will  discover 
whether  railroads  are  giving  rebates  and  whether  they  are  dis- 
criminating between  shippers  in  the  matter  of  freight  rates.  The 
present  laws  on  the  statute  books  provide  penalties  of  sufficient 
severity  for  the  giving  of  rebates  and  for  discriminations.  Their 
ineffectiveness  is  due  very  largely  to  the  inability  of  the  government 
to  obtain  the  facts  upon  which  a  judgment  for  conviction  can  be 
obtained.  While  the  examination  of  the  books  of  the  common  car- 
riers alone  might  not  secure  the  evidence  required,  the  simultaneous 
examination  of  the  affairs  of  transportation  companies  and  of  ship- 
ping corporations  would  undoubtedly  bring  to  light  all  violations  of 
the  anti-rebate  and  discriminatory  laws.  No  additional  legislation 
appears  to  be  needed  if  this  proposed  inspection  is  adopted. 

The  railroads,  by  governmental  inspection,  being  freed  from 
the  pressure  compelling  the  giving  of  rebates,  will,  for  the  first  time, 
be  enabled  to  compete  with  each  other  on  equal  terms.  Competi- 
tion will  then  be  free  and  the  railroad  giving  the  best  service  or 
charging  the  lowest  freight  rates  will  get  the  business.  The  graded 
tax  on  profits  above  six  per  cent,  will  take  away  the  desire  to  obtain 
large  temporary  profits  at  the  risk  of  losing  traffic  by  competing 
roads  extending  their  lines  to  enter  into  direct  competition. 

With  profits  taxed  so  heavily  and  competition  being  on  terms 
of  absolute  equality,  the  railroads  would  be  compelled  for  their 
own  protection  to  keep  their  rates  reasonable  and  to  give  good 
service  to  the  public.  If  this  plan  of  inspection  and  taxation  did 
not  furnish  the  relief  contemplated,  the  changed  conditions  resulting 
therefrom  would  undoubtedly  suggest  a  remedy,  possibly  not  so 
drastic  as  the  remedies  suggested  to-day.  Our  democratic  Amer- 
ican government  should  not  be  permitted  to  step  in  and  run  the 
business  of  individuals  by  fixing  the  rates  to  be  charged,  whether 
such  business  be  in  its  nature  private,  quasi-public  or  public,  except 
as  a  last  resort  for  the  protection  of  the  people  when  all  other  feasi- 
ble plans  have  failed  to  provide  the  proper  checks  and  needful 
remedies. 


CONSTITUTIONAL   DIFFICULTIES   OF   TRUST 

REGULATION 


Bv  Warren  Bigelow,  Ph.B.,  LL.  M. 
Of  the  New  York  Bar. 


The  present  administration  at  Washington,  in  seeking  to  enact 
laws  that  will  curb  the  power  of  the  trusts  and  prevent  the  abuses 
so  common  among  them,  has  heeded  the  outcry  raised  by  many  intel- 
ligent people.  But  the  popular  notion  seems  to  be  that  all  Congress 
has  to  do  is  to  pass  laws  much  as  Aladdin  might  rub  his  lamp,  and 
the  wished-for  remedy  will  appear.  We  must  not  forget  that  Con- 
gress is  limited  in  the  scope  of  its  action  by  a  written  Constitution, 
and  that  the  acts  of  the  legislative  department  must  be  done  with  a 
view  to  carrying  out  some  power  granted  to  Congress.  If  that 
body  passes  a  law  that  is  not  in  harmony  with  the  Constitution,  it 
will  be  pronounced  void  by  the  Supreme  Court. 

I. 

Nowhere  in  the  Constitution  is  Congress  given  the  power  to 
charter,  regulate  or  control  a  corporation.  It  has  long  since  been 
decided  by  the  Supreme  Court,  however,  that  Congress  has  not 
only  the  specific  powers  mentioned  in  the  Constitution,  but  also  the 
implied  powers  which  are  necessary  or  proper  to  exercise  in  the 
performance  of  its  specific  duties.  Thus,  the  authority  vested  in 
Congress  "to  establish  post  offices  and  post  roads"  is  a  definite  grant 
of  power  which  carries  with  it  authority  to  legislate  on  subjects 
remotely  connected  with  the  mail  service — authority,  for  example, 
to  build  a  prison  if  that  were  necessary  to  punish  those  who  rob  the 
mails. 

There  is  another  important  clause  in  the  Constitution  which 
nuist  not  be  forgotten.  Article  X  of  the  amendments  reads :  "The 
powers  not  delegated  to  the  United  States  nor  prohibited  by  it  to  the 

[656] 


Constitutional  Difficulties  of  Trust  Regulation  45 

states,  are  reserved  to  the  states  respectively  or  to  the  people."  As 
the  Constitution  does  not  give  to  the  federal  government  the  right  to 
charter  or  control  corporations,  that  right  must  be  reserved  to  the 
states  or  to  the  people ;  and  since  corporations  are  in  all  cases  created 
by  legislation,  the  right  must  be  reserved  to  the  states.  It  follows 
that  any  attempt  on  the  part  of  Congress  to  enter  this  field  of  legis- 
lation, is  an  infringement  on  state  rights,  and  therefore  unconstitu- 
tional. 

This  conclusion  must  be  absolutely  true  unless  there  is  some 
specific  duty  imposed  on  Congress,  the  proper  fulfillment  of  which 
demands  that  Congress  legislate  concerning  corporations.  It  would 
then  have  implied  power  to  do  so.  A  very  apt  illustration  is  found 
in  the  chartering  of  a  bank  of  the  United  States,  which  was  upheld 
by  the  Supreme  Court  on  the  ground  that  it  was  incidental  to  the 
coinage  and  regulation  of  money — a  prerogative  vested  in  Congress. 
Yet  this  may  not  be  so  apt  an  illustration  as  the  post  office  clause ; 
for,  with  respect  to  the  chartering  of  a  bank  of  the  United  States, 
the  Supreme  Court  said  that  it  was  an  attribute  of  sovereignty  to 
create  a  corporation,  and  no  specific  right  need  be  vested  in  Con- 
gress.^ If  this  be  true,  there  is  no  need  to  seek  further  for  con- 
stitutional justification  for  federal  incorporation  of  interstate  com- 
panies. The  proposition  is  clear:  let  the  United  States  charter  all 
companies  that  desire  to  carry  or  sell  goods  among  the  several  states. 

Commissioner  Garfield,  in  his  report  on  corporations,  finds  some 
legal  difficulties  in  such  a  measure,  and  indeed  there  are  some. 
While  it  may  be  clear  that  Congress  can  incorporate  a  company 
doing  interstate  business,  it  is  not  evident  that  it  can  in  this  way 
abolish  the  trusts  already  created  by  state  legislation.  With  that 
subject  we  shall  deal  presently.  The  commissioner  recommends 
"Federal  License"  or  "Federal  Franchise." 

Now,  if  any  form  of  regulation  or  control  is  sought  other  than 
by  direct  federal  incorporation,  where  shall  we  find  authority  ?  Aside 
from  that  very  vague  article  which  makes  Congress  the  custodian 
of  the  public  welfare,  the  only  constitutional  clause  wherein  we 
may  hope  to  find  authority  for  trust  legislation,  is  that  which  says : 
"Congress  shall  have  power  to  regulate  commerce  with  foreign 
nations  and  among  the  several  states."  Under  this  clause  the 
Sherman  anti-trust  law  was  passed  in  1890,  "to  protect  trade  and 

'  McCulloch  vs.  Maryland,  4  Wheaton,  316. 

[657] 


46  The  Annals  of  the  American  Academy 

commerce  from  unlawful  restraint  and  monopoly."  It  provided 
that  "any  combination  in  form  of  trust  or  conspiracy  in  restraint  of 
trade  shall  be  illegal,  and  any  participant  in  such  combination  .  .  . 
guilty  of  a  misdemeanor."  Up  to  the  present  year  the  Sherman  act 
was  so  limited  by  judicial  interpretation  that  it  applied  only  to  rail- 
roads and  other  common  carriers.  In  the  case  of  the  United  States 
against  Knight  Company-  it  was  held  that  a  monopoly  for  the  man- 
ufacture of  sugar  did  not  fall  within  the  provisions  of  the  Sherman 
law  because  that  act  applied  to  interstate  commerce  only,  and  com- 
merce did  not  commence  until  after  the  sugar  had  been  manufac- 
tured. The  court  freely  admitted,  however,  that  a  monopoly  for  the 
manufacture  of  sugar  might  tend  to  raise  prices,  and  thus  indirectly 
interfere  with  interstate  commerce.  The  breaking  up  of  the  North- 
ern Securities  merger  did  not  operate  to  extend  the  scope  of  the 
act,  because  that  too  dealt  with  common  carriers.  The  recent  "Beef 
Trust"  decision  is  somewhat  broader,  but  in  that  case  the  court 
found  a  conspiracy  to  exist  which  in  their  opinion  was  in  restraint 
of  trade.  It  is  quite  obvious  that  there  are  many  abuses  of  the 
trusts  which  cannot  be  called  a  conspiracy  in  restraint  of  trade — ■ 
abuses  like  the  watering  of  stock — which  tend  to  increase  public 
suspicion  of  corporate  organization,  and  which,  as  Judge  Grosscup 
has  pointed  out,  tend  to  lessen  and  destroy  individualism  by  making 
the  mass  of  the  people  withhold  their  capital  from  active  business 
enterprise,  abuses  which  must  be  checked,  but  which  cannot  be 
reached  by  the  laws  as  they  stand  to-day. 

Legislation  must  be  extended  so  as  to  embrace  control  of  cor- 
porations in  all  their  functions.  Whatever  form  such  legislation 
may  take,  it  must  be  enacted  with  a  view  to  carrying  out  the  power 
now  vested  in  Congress  to  regulate  commerce.  To  what  extent 
would  federal  legislation  be  justifiable  as  a  means  to  that  end?  As 
John  Marshall  said  in  the  case  of  Gibbons  against  Ogden :'  "The 
power  to  regulate  commerce  is  not  restricted  to  any  one  mode  or 
any  one  branch.  The  term  commerce  describes  the  commercial  in- 
tercourse between  nations  and  parts  of  nations,  in  all  its  branches, 
and  is  regulated  by  prescribing  the  rules  for  carrying  on  that  inter- 
course." This  language  is  full  of  meaning:  the  power  is  not  re- 
stricted by  any  one  mode  of  regulation  or  any  one  branch  of  com- 

2  Reported,  156  U.  S.  i. 
'  9  Wheaton,  i. 

[658] 


Constitutional  Difficulties  of  Trust  Legislation  47 

merce,  and  commerce  is  regulated  by  prescribing  the  rules  for  carry- 
ing on  that  intercourse.  Under  this  decision  it  would  seem  that  a 
rule  requiring  all  corporate  acts  be  made  public,  or  a  rule  prescrib- 
ing that  all  commerce  among  the  states  be  carried  on  only  by  indi- 
viduals licensed,  or  by  corporations  chartered,  by  the  United  States, 
would  be  upheld  as  the  exercise  of  an  implied  power. 

Or  again,  if,  as  the  court  said  in  the  sugar  case,  a  monopoly 
for  the  manufacture  of  sugar  may  raise  prices  and  thus  indirectly 
interfere  with  interstate  commerce,  surely  it  may  be  added  that 
Congress  is  not  limited  in  the  scope  of  its  action  to  preventing 
direct  interference.  It  may  regulate  commerce  to  the  last  and  most 
minute  detail,  just  as  it  may  regulate  the  mail  service  to  the  last  and 
most  minute  detail ;  it  "acknowledges  no  limitations  other  than  those 
prescribed  by  law ;"  and  it  may  prevent  indirect  as  well  as  direct 
interference  with  the  trade  among  the  several  states. 

Our  conclusion  is  that  the  Supreme  Court  would,  in  a  test  case, 
be  justified  in  upholding  almost  any  form  of  legislation  in  this  field, 
on  the  ground  of  implied  powers ;  for  the  court  would  consider 
only  this  question :  "Was  the  act  of  Congress  designed  as  a  means 
to  the  regulation  of  commerce,  and  is  it  adaptable  to  that  end  ?"  The 
court  does  not  ask  whether  the  law  is  necessary  or  unnecessary,, — 
it  asks  whether  it  was  enacted  in  pursuance  of  the  carrying  out  of 
some  power  vested  in  Congress.  But  the  Supreme  Court  might 
not  uphold  such  legislation ;  it  might  follow  the  sugar  case,  and 
say  that  Congress  has  jurisdiction  only  over  interstate  commerce 
as  such,  and  that  any  attempt  to  regulate,  beyond  the  actual  trans- 
portation of  goods  from  one  state  to  another,  would  be  ultra  vires. 

There  is  naturally  considerable  room  for  conjecture  as  to  how 
far  the  court  would  go.  Let  us  take  an  illustration :  we  read  much 
nowadays  about  copper  mines  without  copper,  and  stock  without 
assets — well,  suppose  Congress  passed  a  law  requiring  all  corpora- 
tions doing  interstate  business  to  publish  sworn  statements  of  their 
assets,  liabilities,  earnings  and  stock  issued.  Would  not  the  Supreme 
Court  be  entirely  justified  in  ruling  that  such  enactment  did  not 
aflfect  commerce  and  was  therefore  unconstitutional?  Even  if  such 
a  law  were  sustained,  can  a  mining  company  engaged  in  digging 
ore,  and  an  oil  company  engaged  in  boring  the  earth,  be  said  to  be 
doing  interstate  commerce  when  both  perhaps  sell  their  product  to 
another  company    (though  owned  by  the  same  capitalists)    which 

[659] 


48  T]ie  A)i}ials  of  the  American  Academy 

transports  the  goods  ?  A\'hat  can  prevent  a  coterie  of  railroad  mag- 
nates from  organizing  themselves  into  a  terminal  company,  selling 
themselves  the  privilege  of  landing  passengers  and  freight,  and  thus 
fleecing  the  small  stockliolder  and  the  public  in  general?  None  of 
these  companies  is  engaged  in  interstate  commerce.  Herein  lies  the 
difficulty  of  all  legislation  designed  to  prevent  fraud:  it  can,  under 
the  Constitution,  be  directed  against  "interstate"  companies  only, 
while  others  continue  their  fraud  and  abuses  as  indicated  above. 

Something  can,  no  doubt,  be  accomplished  by  federal  interven- 
tion. Of  the  methods  usually  spoken  of  to-day,  "federal  incorpora- 
tion" seems  to  the  author  a  more  logical  solution  than  mere  "federal 
franchise,"  first  because  it  does  not  involve  the  rather  absurd  sit- 
uation of  a  corporation  created  by  a  sovereign  state  being  taxed, 
controlled  and  allowed  to  live  by  the  sovereign  United  States;  and 
secondly,  for  reasons  which  will  appear  in  Part  II. 

II 

The  difficulty  to  be  overcome  in  trying  to  solve  the  trust  prob- 
lem by  means  of  federal  incorporation  does  not  lie  in  the  vastness 
of  the  undertaking  (that  is  a  detail  of  the  executive  function),  but 
rather  in  the  conflict  between  state  and  nation — in  the  infringement 
on  state  risrhts  which  it  seems  to  involve. 

Several  vital  and  intimately  connected  questions  arise:  (a)  ^^'as 
the  right  to  create  a  corporation  reserved  to  the  states  by  reason  of 
the  fact  that  it  was  not  granted  to  the  United  States?  (b)  ]\Iay 
not  both  the  United  States  and  the  several  states  enjoy  the  right? 
(c)  Would  it  be  possible  for  the  United  States  to  control  or  destroy 
the  corporations  created  by  the  states  or  to  prevent  their  engaging 
in  interstate  business? 

(a)  As  we  said  in  Part  I,  the  right  to  create  a  corporation  was 
certainly  reserved  to  the  states,  unless  it  can  be  said  that  the  United 
States  has  that  function  irrespective  of  direct  grant  in  the  Con- 
stitution. As  a  sovereignty,  this  nation  can  create  a  corporation. 
Nothing  further  appearing,  it  would  be  fair  to  assume  that  both 
the  federal  and  state  governments  may  exercise  the  right  concur- 
rently ;  the  United  States  because  of  its  sovereignty,  and  the  states 
because  the  power  which  they  had  before  the  adoption  of  the  Con- 
stitution was  never  taken  from  them.     Or  if  the  "commerce  clause" 

[660] 


Constitutional  Difficulties  of  Trust  Legislation  49 

impliedly  gave  the  right  to  the  United  States,  at  least  the  states  may 
exercise  the  right  until  Congress  chooses  to  do  so.* 

(b)  While  it  is  feasible  to  have  corporations  chartered  by  dif- 
ferent powers  operating  at  the  same  time,  that  situation  does  not 
help  matters.  Now,  the  doctrine  is  well  settled  that  where  the 
federal  government  has  not  acted,  the  states  may,  but  when  Con- 
gress legislates  with  respect  to  a  subject  matter  within  its  jurisdic- 
tion, the  states  are  thereby  precluded.^  As  long  ago  as  1824  the 
State  of  New  York  was  prevented  from  creating  a  steamboat  trust, 
with  the  exclusive  privilege  of  navigating  the  waters  in  and  about 
New  York.  Congress  having  theretofore  provided  for  the  licensing 
of  coasting  vessels,  had  thereby  withdraw^n  the  subject-matter  of 
navigation  from  state  control,  and  the  franchise  granted  by  the  New 
York  legislature  was  pronounced  void.® 

If  then.  Congress  enacted  laws  providing  that  no  corporation 
hereafter  organized  shall  conduct  an  interstate  business  unless  the 
same  shall  have  been  organized  under  federal  law,  the  whole  sub- 
ject-matter w^ould  be  withdrawn  from  state  control,  and  the  system 
of  incorporating  in  one  state  for  the  purpose  of  exploiting  the  others 
would  be  at  an  end.  But  all  this  is  not  enough :  it  will  not  suffice 
to  create  good  trusts  in  the  future — w^e  must  rid  ourselves  of  the 
bad  trusts  of  the  present. 

(c)  One  thing  is  essential  if  federal  incorporation  be  the  plan 
adopted :  existing  as  well  as  future  companies  must  be  brought 
within  the  federal  law.  To  condemn  the  charters  under  the  power 
of  eminent  domain  would  vest  proprietorship  in  the  United  States — 
perfect  state  socialism.  To  declare  the  charters  void  would,  under 
the  decision  in  the  case  of  "Dartmouth  College  against  Woodward,"^ 
be  a  violation  of  contract  and  therefore  unconstitutional.  There  re- 
mains but  one  way  in  which  the  nation  could  secure  control :  tax 
the  franchise  or  stock  of  state  corporations  doing  interstate  busi- 
ness so  heavily  that  they  avouM  be  forced  to  accept  federal  charters. 

From  the  days  of  the  Boston  tea  party  the  American  people 
have  had  a  deadly  hatred  for  anything  resembling  unjust  taxation. 
But  a  prohibitive  tax  is  not  unknown  in  this  country.  Under  the 
stress  of  the  Civil  War  the  United  States  becoming  obliged  to  secure 

*  Thurlow  vs.  Mass.,  s  How.  Rep.  504. 
'Brown  I's.  Maryland,  12  Wheaton,  419. 
•Gibbons  vs.  Ogden,  9  Wheaton,  i. 
'  4  Wheaton,  518. 

[661] 


50  Tlie  Annals  of  the  American  Academy 

a  market  for  its  bonds,  placed  a  prohibitive  tax  of  lo  per  cent,  on 
the  issue  of  bank  notes  by  state  banks,  and  thereby  forced  the  great 
majorit}^  of  them  to  accept  national  charters  and  buy  United  States 
bonds. 

In  support  of  this  means  of  securing  control  it  may  be  argued 
that  the  tax  would  probably  be  upheld  by  the  Supreme  Court  as 
incidental  to  the  proper  regulation  of  interstate  commerce;  for 
taxation  has  ever  been  recognized  as  a  means  of  regulation.  More- 
over, if  the  United  States  taxed  state  corporations,  the  states  could 
not — "for  the  term  to  regulate  implies  full  power  over  the  thing 
regulated  ;  it  excludes  necessarily  the  action  of  all  others  who  would 
perform  the  same  operation  on  the  same  thing."  Xor  could  any 
state  tax  a  federal  corporation.^  There  seems  to  be  a  conflict  of 
interests  in  this  situation.  But  where  a  conflict  exists  between  state 
and  nation,  "that  authority  which  is  supreme  must  control,  not 
yield  to,  that  over  which  it  is  supreme." 

One  objection  raised  by  Commissioner  Garfield  in  his  report 
was  that  "federal  incorporation"  would  centralize  vast  power  in  the 
United  States.  On  the  contrary,  this  fact  ought  not  to  be  con- 
sidered an  objection.  The  commissioner  himself  finds  that  the  great 
difficulty  attending  regulation  to-day  lies  in  the  diversity  of  state 
laws.  Concentration  of  power  would  bring  uniformity  in  the  law 
as  well  as  centralization  of  responsibihty :  to  these  we  had  best 
look  for  the  desired  reforms. 

It  is  difficult  to  see  how  even  compulsory  federal  incorporation 
could  reach  that  class  of  evils  mentioned  at  the  end  of  Part  I  of  this 
article,  unless  the  nation  arrogate  the  function  of  creating  all  cor- 
porations. But  to  take  from  the  states  by  constitutional  amendment, 
the  right  to  create  a  corporation  designed  to  operate  within  the  state 
would  be  to  spoil  that  nice  adjustment  of  sovereignty  between  state 
and  nation  which  forms  so  distinguishing  and  so  highly  cherished 
a  feature  of  the  American  government.  ^Many  careful  thinkers, 
however,  recommend  a  constitutional  amendment  as  the  most  prac- 
tical solution ;  others,  less  careful,  say,  "between  friends,  what  is  the 
Constitution,  anyhow?"  and  point  to  extra-constitutional  acts  in  the 
past. 

*  On  taxation  in  general,  see  McCulloch  vs.  Maryland,  4  Wheaton.  316;  Brown  vs.  Marj'- 
land.  supra;  Telegraph  Co.  vs.  Texas,  150  U.  S.  460;  and  Fargo  w.  Mich.,  121  U.  S.  230. 

[662] 


Constitutional  Difficulties  of  Trust  Legislation  51 

III. 

It  is  true  that  many  things  have  been  done  at  Washington  with- 
out the  sanction  of  law ;  but  there  is  a  factor  in  the  affairs  of  nations 
as  well  as  of  men,  that  transcends  all  law :  economic  necessity  is  a 
compelling  force  not  to  be  restrained  by  written  constitutions.  When 
Jefferson  negotiated  the  purchase  of  Louisiana  he  acted  contrary 
to  his  'own  tenets  and  without  authority.  A  great  cry  was  made 
a  year  ago  that  President  Roosevelt  had  overridden  the  Consti- 
tution in  recognizing  the  Republic  of  Panama.  Perhaps  he  did ;  at 
least  it  is  clear  to  the  writer's  mind  that  the  Republic  would  not 
have  been  recognized,  had  not  the  President  foreseen  the  strategic 
and  commercial  necessity  of  building  the  canal.  In  1803  it  became 
essential  for  this  nation  to  control  forever  the  Mississippi  and  the 
commerce  of  North  America ;  a  century  later  it  became  essential 
for  this  nation  to  control  the  gateway  to  the  Pacific,  and  thus  assure 
forever  dominion  over  the  western  continent  and  the  trade  of  the 
world.  These  things  and  others  have  been  done  at  the  call  of 
economic  necessity,  and  have  been  ratified  by  Congress  and  approved 
by  the  people  because  they  were  necessary  and  not  because  they 
were  v/ithin  the  strict  letter  of  the  law. 

We  must  not,  however,  look  for  relief  in  the  trust  situation 
except  through  laws  properly  passed ;  for  in  the  first  place,  trust 
legislation  is  far  more  likely  to  be  brought  before  the  Supreme 
Court  for  adjudication  than  matters  of  foreign  policy ;  and  in  the 
second,  the  economic  necessity  for  extra-constitutional  action  is  not 
manifest  when  there  is  ample  time  to  amend  the  Constitution  if 
necessary.  By  an  amendment,  the  powers  of  Congress  might  be 
carefully  defined  and  the  scope  of  its  authority  so  extended  as 
to  give  it  exclusive  jurisdiction  to  create  and  control  all  interstate 
companies.  Some  decided  benefits  might  follow  such  a  course. 
If  the  powers  of  Congress  were  exactly  defined,  the  laws  en- 
acted would  not  run  so  great  a  risk  of  being  pronounced  un- 
constitutional. Again,  the  United  States  Senators  might  be  more 
ready  to  act  under  the  authority  of  an  amendment  than  they 
showed  themselves  to  be  last  year.  At  any  rate  the  "common 
people"  who  are  interested  in  railroad  and  trusf  matters  (though 
not  in  the  same  way  as  many  of  the  senators)  would  be  in  a  position 

[663] 


52  The  Annals  of  the  American  Academy 

to  demand  that  some  action  be  taken  by  the  senators  and  repre- 
sentatives, or  that  their  chairs  in  Congress  be  vacated. 

Not  the  least  objectionable  feature  of  this  plan,  however,  is 
the  difficulty  of  the  procedure.  Two-thirds  of  both  houses  of  Con- 
gress must  agree  on  the  amicndment,  which  must  then  be  ratified 
by  three-fourths  of  the  state  legislatures."  If  the  Senate  parly  a 
whole  winter  over  giving  the  Interstate  Commerce  Commission 
increased  jurisdiction,  we  inight  expect  them  to  agree  on  an  amend- 
ment in  the  time  of  our  great-grandchildren.  More  than  that,  the 
"State  Rights"  doctrine  is  still  so  strong  in  many  states  that  it  is  very 
much  to  be  doubted  if  three-fourths  of  the  states  could  be  brought 
to  see  the  virtue  in  an  amendment  which  would  vest  in  the  national 
government  any  increased  power.  Another  great  objection  to  pass- 
ing an  amendment  is  the  fact  that  the  necessity  therefor  is  not 
absolutely  apparent,  and  we  ought  not  to  tamper  with  our  funda- 
mental law  unless  the  need  is  urgent.  Until  Congress  has  exhausted 
its  present  resources  (the  implied  powers)  there  is  no  occasion  for 
employing  other  ways  and  means  for  securing  regulation  of  the 
trusts.  Yet,  as  we  have  said,  the  only  way  to  exhaust  the  present 
resources  is  to  pass  laws  designed  as  a  means  to  the  regulation  of 
"commerce  among  the  several  states,"  and  then  if  these  laws  are 
pronounced  unconstitutional,  to  enact  new  laws — surely  a  tedious 
and  somewhat  dangerous  method  involving  many  possible  upheavals 
in  the  financial  world  as  well  as  general  business  depression.  It  is 
not  an  easy  thing  to  pass  trust  laws  which  will  be  upheld,  for,  as  we 
have  pointed  out,  the  authority  for  such  enactments  can  be  found 
only  by  a  breadth  and  liberality  of  judicial  interpretation  such  as 
John  Marshall  was  wont  to  give  to  the  Constitution. 

Without  desiring  to  be  pessimistic,  we  must  say  that  even  if 
appropriate  laws  were  passed  and  sustained,  no  great  good  could 
be  accomplished  unless  the  enforcement  thereof  were  vigorous  and 
effective.  The  wiser  policy  will  be  to  make  haste  slowly,  and  use 
the  utmost  care  and  skill  in  passing  trust  legislation,  for  the  solu- 
tion of  the  problem  is  as  difficult  and  as  complicated  as  the  question 
itself  is  serious,  and  it  demands  both  time,  and  the  best  work  of  the 
best  brains  of  the  land. 

'Const.  Art.  s. 


THE  RELATION  OF  AUDITING  TO   PUBLIC  CONTROL 


By  Frederick  A.  Cleveland,  Ppi,  D., 
New  York  University,  Citj'  of  New  York. 


The  corporation  is  an  association  of  persons  combined  for  com- 
mon ends.  The  primary  principle  of  economic  and  social  advantage 
in  corporate  organization  is  to  be  found  in  the  broader  co-operation 
made  possible  thereby.  The  corporation  is  the  modern  instrument 
of  private  and  public  welfare,  and  any  consideration  to  be  given  to 
the  subject  of  control  by  the  government  should  proceed  from  the 
point  of  view  of  welfare  to  the  corporation,  rather  than  opposition 
to  it.  While  practices  have  been  permitted  by  officers  of  corpora- 
tions that  are  deserving  of  the  severest  condemnation  as  opposed 
to  public  interest,  the  hostility  that  is  shown  (especially  to  those 
forms  of  corporations  known  as  "trusts")  has  in  large  measure  been 
born  of  ignorance  and  fostered  by  envy — ignorance  as  to  the  char- 
acter of  the  institutions  through  which  much  of  our  national  pros- 
perity has  been  attained,  and  envy  that  is  in  a  measure  attributable 
to  the  greater  success  of  those  who  have  worked  through  the  cor- 
poration. Out  of  this  hostility  has  developed  much  of  harm  both  to 
the  corporation  and  to  the  public.  The  products  of  misguided  attack 
have  been  hasty  legislation  and  abortive  attempts  at  public  control 
over  the  corporation  as  a  means  of  hampering  its  prosperity — at- 
tempts which,  in  many  instances,  if  successful,  would  have  thwarted 
national  progress,  violated  contracts,  rendered  uncertain  business 
judgment  and  destroyed  many  of  our  best  institutions.  As  concrete 
illustration  of  this  we  have  the  "granger  legislation"  of  some  twenty 
years  ago,  from  the  evil  effects  of  which  we  have  not  yet  wholly 
recovered — a  species  of  legislative  action  which  has  practically 
driven  the  larger  corporations  out  of  local  jurisdictions  where  they 
should  have  received  legal  protection,  causing  them  to  find  cover  in 
states  far  removed  from  investment  capital  interests  and  from  the 
resources  to  be  developed. 

[665] 


54  The  Annals  of  the  American  Academy 

And  this  hostility  is  growing.  By  the  corporations  removing 
themselves  from  the  jurisdiction  of  hostile,  local  courts  and  legisla- 
tures, by  seeking  protection  as  citizens  of  a  foreign  state  under  the 
federal  constitution,  the  demand  for  public  control  now  centers  in 
the  national  capitol  to  which  are  sent  the  political  representatives  of 
these  same  hostile,  local  constituencies.  Whatever  may  be  the  mel- 
lowing effect  of  broader  association,  whatever  the  wider  view  gained 
by  representatives  in  Congress,  these  representatives  (measured  by 
their  constituency  according  to  the  hostility  which  they  display 
toward  corporations)  are  forced  into  an  attitude  which  is  threaten- 
ing both  to  corporate  organization  and  to  the  integrity  of  the  gov- 
ernment itself.  By  making  the  legislative  lobby  the  chief  instru- 
ment of  corporate  protection,  both  the  government  and  the  corpora- 
tion becomes  corrupted  till  finally  popular  prejudice  seeking  expres- 
sion in  law,  through  ignorant  bias  may  seriously  handicap  material 
development.  Such  is  the  situation  that  citizen  and  stockholder 
must  face  in  any  effort  directed  toward  a  better  adaptation  of  the 
law  to  the  growing  needs  of  the  nation. 

Federal  legislation  may  be  regarded  as  inevitable ;  it  is  sought 
alike  both  by  the  corporation  and  by  the  public ;  it  is  sought  by 
the  one  as  a  means  of  protecting  corporate  interest,  by  the  other  to 
the  end  of  instituting  forms  of  inquisition  that  may  prove  discour- 
aging to  corporate  activity  and  destructive  to  industrial  and  com- 
mercial welfare.  What  the  next  few  years  will  develop  will  depend 
largely  on  the  mutual  consideration  given  by  parties  in  interest  to 
the  merits  of  the  question.  Nothing  could  be  more  dangerous  than 
legislation  that  comes  in  response  to  popular  hatred ;  neither  would 
it  be  more  fortunate  if  the  law  were  shaped  by  the  usual  interests 
of  corporate  officials  and  agents,  through  sharp  practice  and  deceit. 
The  issues  must  be  fairly  considered  and  fairly  met  by  both  parties 
without  regard  to  the  wishes  or  dangerous  contrivances  of  self- 
interested  officials  or  peculating  corporate  agents  who  prosper  by 
abusing  the  confidence  of  the  public  as  well  as  of  shareholding 
proprietors. 

Public  Control  and  Public  Welfare. 

To  be  effective,  public  control  must  be  such  as  zvill  promote 
rather  than  impair  public  welfare.  Accepting  this  as  our  first  pre- 
mise for  reasoning,  there  are  two  classes  of  concepts  that  must  be 

[666] 


The  Relalion  of  Auditing  to  Public  Control  55 

understood  and-  appreciated.  These  may  be  the  more  clearly  brought 
before  us  by  the  questions:  (i)  What  is  the  character  and  signifi- 
cance of  the  institution  or  co-operating  group  known  as  the  private 
corporation,  and  (2)  What  is  the  significance  of  control. 

The  private  corporation  is  a  democratic  institution ;  it  is  the  pro- 
totype of  modern  democratic  government ;  it  is  the  creature  of  the 
state  designed  to  promote  both  public  and  private  welfare ;  its  pur- 
pose is  to  secure  to  its  stockholders  and  to  the  public  the  benefits 
of  broad  association  and  intelligent  co-operation  in  private  business 
without  the  exercise  of  an  arbitrary  will  or  a  Caesarian  prerogative  by 
those  in  official  or  directing  position.  Both  creative  enactment  and 
the  organic  corporate  structure  are  designed  to  prevent  the  exercise 
of  arbitrary  power  by  those  managing  community  interests.  Legally 
and  organically,  the  corporate  will  is  the  will  of  the  majority  of  the 
stockholding  proprietors ;  if  the  acts  or  policy  of  the  corporation 
are  not  in  accord  with  public  ideals  and  do  not  proceed  from  the 
expression  of  the  will  of  the  majority  of  the  stockholders,  if  any 
officer  or  coterie  of  agents  does  exercise  arbitrary  power,  then 
legally  and  organically  the  public  law  makers,  or  the  stockholders, 
or  both  are  at  fault  for  permitting  their  servants  to  assume  to  con- 
tinue to  exercise  this  arbitrary  power. 

It  is  to  the  end  that  neither  public  welfare  nor  the  private  pro- 
prietary purpose  may  be  violated  that  control,  both  public  and  pri- 
vate, is  to  be  instituted.  It  is  for  the  purpose  of  making  control 
effective,  of  making  the  corporation  as  well  as  each  agent  respon- 
sive to  the  state  as  well  as  to  the  proprietary  shareholding  interests 
— that  the  form  of  corporate  organization  is  prescribed.  The  pri- 
mary principle  of  public  control  lies  in  the  fact  that  a  corporation 
must  obtain  a  charter;  as  a  means  of  protecting  public  zvelfare  no 
corporation  is  permitted  to  enjoy  rights  or  exercise  powers  except 
such  as  are  granted  to  it.  The  principles  fundamental  to  private 
control,  or  the  responsibility  of  the  corporation  and  its  agents  to 
shareholding  proprietors,  lie  in  the  legal  provisions  made  with 
respect  to  corporate  organization. 

Factors  of  Public  Control. 

Let  us  consider  in  detail  the  factors  of  control.  As  related  to 
public  welfare,  the  powers  of  control  lie  with  the  government.  These 

[667] 


56  The  Annals  of  the  Anterican  Academy 

powers  are  legislative,  executive  and  judicial.  The  powers  of  gov- 
ernment are  both  adequate  and  complete.  The  legislature  as  the 
representative  of  public  opinion,  as  the  corporate  agent  of  welfare, 
determines  for  what  purpose  and  in  what  manner  corporate  pow- 
ers are  to  be  exercised ;  it  is  through  laws,  general  or  specific,  by 
virtue  of  which  the  corporate  group  obtains  its  charter  powers, 
that  all  problems  concerning  public  policy  are  to  be  the  most 
effectively  reached.  The  charter  or  contract  of  incorporation  de- 
termines what  a  corporation  may  do  or  possess.  Are  there  ques- 
tions pertaining  to  rights  of  succession,  to  capitalization,  to  property, 
to  methods  of  acquisition,  to  eminent  domain,  to  powers  of  purchase 
and  control  of  the  stock  of  other  corporations?  Is  the  public 
aggrieved  because  of  franchises  or  public  utility  enjoyed,  because 
of  the  domination  of  a  corporation  by  a  single  stockholder  through 
his  power  to  purchase  or  acquire  a  majority  control  or  because  of 
the  pooling  of  stock  interests  ?  These,  and  all  other  questions  which 
have  to  do  with  public  policy  or  public  well-being  are  to  be  fairly 
considered  by  the  law-making  or  charter-granting  branch  of  the 
government  before  the  corporation  is  organized.  Is  the  "trust"  or 
the  "holding  company"  an  evil?  Is  the  purpose  for  which  the  cor- 
poration is  to  be  organized  against  public  policy  ?  Then  the  remedy 
is  primarily  in  legislation  governing  charter  grants,  and  not  in  exec- 
utive or  judicial  inquisition,  seeking  to  curtail  rights  granted  or 
implied. 

Once  a  charter  has  been  granted  and  accepted,  or  a  corporation 
organized  in  accordance  with  the  provisions  of  a  general  law,  the 
state,  by  all  its  administrative  powers,  executive  and  judicial,  is 
bound  to  enforce  the  contract  which  has  been  entered  into  between 
the  state  and  the  incorporators.  Neither  the  citizen  nor  the  govern- 
ment may  hope  effectively  to  reach  problems  pertaining  to  public 
welfare  or  public  policy  except  as  they  themselves  may  control  their 
own  representatives  and  agents,  politically  appointed  or  selected  to 
formulate  laws  defining  the  powers  and  purposes  of  incorporated 
companies.  A  general  law  of  incorporation  stands  on  the  statute 
books  as  an  oft'er  to  all  who  may  wish  to  comply  with  its  terms ; 
a  charter  is  a  grant  on  petition.  This  offer  when  accepted  by  incor- 
porators (or  petition  when  granted)  becomes  a  sacred  compact,  in- 
violable by  executive  or  by  court.  The  charter  grant  or  acceptance, 
or  under  the  general  law  the  acceptance  of  legal  conditions  imposed 

[668] 


The  Relation  of  Auditing  to  Public  Control  57 

becomes  the  basis  for  investment  rights  which  must  be  upheld  by 
the  government  in  the  same  manner  as  are  other  institutions  of  pri- 
vate property. 

Legislative  Inquiry  as  a  Means  of  Public  Control. 

After  entering  into  a  contract  with  a  corporation,  the  only 
question  which  may  be  raised  by  the  government  is,  whether  or  not 
the  terms  of  the  contract  have  been  complied  with.  To  determine 
this  fact,  the  government  ma}-  institute  any  form  of  inquiry  which 
it  may  deem  most  convenient  or  effective.  The  state  may  rely 
entirely  on  its  powers  of  legislative  inquisition,  appointing  commis- 
sions to  take  testimony  and  to  inquire  minutely  into  the  good  faith 
of  the  corporation  and  of  its  agents ;  legislative  inquiry  may  also 
be  made  for  the  purpose  of  determining  conditions  to  be  attached 
to  subsequent  charters  granted,  investigation  being  directed  toward 
the  problem  of  control  of  corporations  to  be  organized  rather  than 
toward  control  over  those  existing  under  present  laws. 

Executive  Inspection  and  Examination  of  Corporate  Records. 

Again,  the  state  may  constitute  a  regular  department  or  corps 
of  inspectors  under  the  control  of  the  executive.  For  example : 
banks  are  incorporated  under  the  laws  of  the  state.  The  public  pur- 
pose of  such  an  incorporated  society  is  to  have  a  responsible  agent 
which  will  furnish  to  the  community  demand  credits  (so-called 
deposits)  for  use  in  business  as  current  funds.  The  social  advan- 
tage is  to  have  provided  a  form  of  cash  more  convenient  in  use  and 
less  expensive  than  money.  The  bank  offers  to  sell  to  its  customer 
an  account  against  which  he  may  draw,  thus  saving  him  the  expense 
and  the  risk  of  carrying  a  money  stock  large  enough  to  answer  the 
needs  of  his  business.  In  passing  laws  for  the  incorporation  of 
banks  the  government,  as  the  agent  of  the  public,  is  interested  in 
knowing  that  the  credit-account  offered  b}'  the  bank  to  its  constitu- 
ency as  cash  is  "sound,"  /.  e.,  that  it  will  be  paid  on  demand.  To 
this  end  the  legislature  requires  that  those  associating  themselves 
for  bank  purposes  shall  contribute  a  capital  sufficient  to  provide 
the  corporation  with  an  adequate  money  stock  out  of  which  the 
credit  -accounts  sold  to  the  public  may  be  currently  redeemed.  Pub- 
lic welfare  demands  an  adequate  bona  fide  cash  capital,  and  that 

[669] 


58  The  Annals  of  the  American  Academy 

this  capital  shall  not  be  permitted  to  become  impaired.  As  a  means 
of  ascertaining  whether  the  charter  provisions  have  been  complied 
with,  the  government  creates  a  department  of  banking  control,  the 
chief  function  of  which  is  to  inspect  and  to  receive  reports  from 
banks.  This  is  done  that  the  government,  through  its  executive 
branch,  may  have  the  means  of  currently  collecting  evidence  of 
good  or  bad  faith  on  the  part  of  the  corporation  or  its  agents,  and 
protect  the  public  as  well'  as  the  institution  itself  against  corporate 
infidelity  which  may  thwart  the  purposes  of  its  creation. 

In  the  interest  of  common  welfare  (expressed  in  service  ren- 
dered for  which  investors  may  obtain  remunerative  return)  a  sav- 
ings bank  is  incorporated.  With  this  institution,  the  principle  of 
welfare  is  one  of  stimulating  savings  by  providing  an  institution 
through  which  the  small  individual  surpluses  acquired  through  pop- 
ular thrift  and  economy  may  be  gathered  into  large  corporate  funds 
— funds  large  enough  to  maintain  a  staff  of  trained  agents  for  the 
protection  of  the  savings  accounts,  and  for  the  proper  direction  of 
capital  into  remunerative  investment.  Safety  of  investment,  the 
best  rate  of  return  compatible  with  safety,  and  prompt  payment  of 
savings  accounts  are  the  criteria  held  before  the  legislature  in  the 
offer  made  to  prospective  incorporators ;  this  is  the  public  interest 
which  the  government  has  in  control  over  incorporated  savings 
societies. 

The  trust  company  is  another  form  of  corporate  organization 
for  public  service.  In  our  modern,  complex  community,  under  con- 
ditions of  constantly  widening  corporate  organizations,  many  forms 
of  trusts  have  grown  up  on  the  execution  of  which  depends  the 
safe  conduct  of  business,  and  the  protection  of  individuals  and 
members  who  may  be  interested  in  institutional  results.  In  this, 
the  measure  of  control  is  fidelity,  conservative  investment  of  funds 
and  income  from  estates,  and  financial  responsibility.  The  insur- 
ance association  is  organized  for  social  protection  against  material 
want  and  private  penury — for  the  protection  of  families  out  of  the 
combined  incorporated  estate  of  the  insured.  In  all  of  the  invest- 
ment institutions,  the  shareholding  proprietor,  if  such  there  be,  is 
one  who  has  contributed  a  portion  of  capital  for  the  protection  of 
trust  resources,  and  to  insure  the  financial  responsibility  of  the 
institution  organized  for  investment  service.  The  stockholder  of 
such  an  institution,  therefore,  has  a  double  duty  to  perform — the 

[670] 


The  Relation  of  Auditing  to  Public  Control  59 

one  to  himself,  the  other  to  the  beneficiary  of  the  corporation  to 
which  the  stockholder  stands  in  relation  of  proprietor.  In  an  institu- 
tion which  does  not  have  the  care  of  trust  estates  or  trust  funds,  the 
penalty  for  failure  on  the  part  of  the  shareholding-  proprietor  to  per- 
form his  duty  is  personal  loss ;  in  a  trustee  institution  whatever  may 
be  the  pecuniary  loss  to  the  shareholder,  the  law  should  compel  a 
strict  propriety  control  in  the  interest  of  the  beneficiary.  In  such 
case  not  only  the  officer  of  the  instituton,  but  the  stockholder  also 
stands  in  a  position  of  trust  responsibility. 

The  same  is  true  of  the  public  service  corporation.  If  gas  is 
to  be  supplied,  the  organic  complexity  of  a  modern  municipality 
may  require  that  the  government  exercise  extreme  care  in  the  grant- 
ing of  charters,  and  that  there  be  such  inspection  as  to  protect  the 
public  against  inferiority  of  product.  The  water  supply  touches  not 
alone  the  interest  of  public  convenience,  but  also  has  an  important 
bearing  on  public  health.  The  transportation  company  is  incorpo- 
rated to  perform  a  service  on  which  depends  not  only  commercial 
and  industrial  welfare,  but  quite  as  much  conditions  of  health  and 
comfort  which  are  centered  in  the  habitat  of  the  individual  citizen. 
Food,  air,  light,  recreation  and  business  are  all  closely  interlaced 
with  the  affairs  of  the  public  service  corporation.  These  are  insti- 
tutional facts  that  must  be  recognized  and  must  be  fairly  dealt  with 
by  the  corporation.  On  the  other  hand,  the  people  must  recognize 
the  character  of  the  corporation  and  must  reckon  with  the  fact  that 
corporations  are  organized  for  public  service  and  that  any  control 
which  tends  to  hamper  or  weaken  corporate  activity  must  neces- 
sarily interfere  with  the  usefulness  of  the  corporation  to  the  public 
itself. 

With  reference  to  all  incorporated  institutions  the  government, 
as  the  representative  of  social  order  and  welfare,  has  an  interest 
in  knowing  that  corporate  control  is  exercised  over  the  agencies  or 
trustees  entrusted  with  the  corporate  estate — an  interest  in  control 
which  runs  not  only  to  the  institution,  as  such,  but  also  to  the  share- 
holding proprietor.  This  interest  requires  that  the  duties  and  re- 
sponsibilities placed  on  the  institution  and  on  the  shareholding 
proprietor  shall  be  strictly  fulfilled,  but  in  case  these  corporate  duties 
and  responsibilities  are  met,  every  administrative  controlling  purpose 
shall  have  been  complied  with.  As  a  means  of  knowing  whether 
the  corporation  has  complied  with  the  charter  contract,  the  govern- 

[671] 


6o  The  Annals  of  the  American  Academy 

ment  vests  its  department  of  inspection  with  power  to  furnish  to  the 
state  evidences  of  infidelity  or  non-feasance.  But  with  this  pubhc 
inspection  should  end.  The  rights,  powers  and  conditions  under 
which  the  company  is  to  operate  must  not  be  interfered  with. 

The  Courts  as  Instruments  of  Public  Control, 

Evidences  of  non-performance  or  malfeasance  having  been 
detected  through  official  inspection,  or  otherwise,  the  department  of 
justice  stands  ready,  by  mandamus,  by  injunction,  by  quo  warranto 
proceedings,  by  receivership,  or  by  charter  annulment  and  dissolu- 
tion, or  other  legal  or  equitable  processes  to  enforce  strict  compli- 
ance with  the  contract  made  by  the  incorporators  with  the  state. 
The  courts  may  interfere  either  for  the  protection  of  public  welfare 
or  as  a  means  of  protecting  the  corporation  itself  against  the  acts 
of  its  agents.  Through  the  courts  any  and  all  provisions  made  for 
social  or  corporate  protection  as  defined  in  legislation,  or  in  legal 
precedents  of  control  may  be  strictly  enforced.  But  any  interference 
on  the  part  of  the  government,  either  through  its  executive  or  judi- 
ciary, which  goes  beyond  this  would  prove  destructive  to  private 
right,  and  impair  the  purposes  for  which  the  government  itself  has 
been  orgfanized. 


't>' 


Significance  of  Private  or  Institutional  Control  of  Corporations. 

In  approaching  the  problem  of  control  two  further  premises 
may  be  laid  down  as  a  basis  for  reasoning:  (i)  that  any  influence 
which  tends  to  encourage  the  larger  and  more  rapid  development  of 
these  several  institutional  forms  of  co-operation  is  an  influence 
which  makes  for  social  progress  and  individual  welfare ;  and  con- 
versely, that  any  influence  which  tends  to  discourage  the  larger 
and  more  rapid  development  of  these  several  forms  of  co-operation 
are  influences  which  stand  in  the  way  of  social  progress  and  indi- 
vidual welfare.  (2)  That  in  institutional  and  social  welfare  must  be 
found  the  largest  success  of  the  corporation  itself  and,  therefore, 
that  the  interest  of  the  public  is  the  interest  of  the  shareholding 
proprietors  of  the  corporation  as  well  as  of  the  several  corporate 
agents  entrusted  with  the  management  of  its  affairs. 

Proceeding  from  the  view-point  of  corporate  success,  the  ques- 
tion of  control  resolves  itself  into  terms  of  corporate  integrity  and 

[672] 


TJie  Relation  of  Auditing  to  Public  Control  6i 

efficiency  of  corporate  management.  The  ideal  of  corporate  integ- 
rity is  that  every  officer  and  employee  shall  completely  bury  his  own 
selfish  purposes  and  devote  his  best  thought  and  talent  to  the  ends 
and  purposes  of  the  institution.  Corporate  fidelity  is  the  essential 
principle  of  corporate  success.  It  is  to  the  private  corporation  what 
patriotism  is  to  the  public  institution. 

Any  system  of  control  which  looks  to  the  success  of  the  cor- 
poration nnist  have  in  mind  fidelity  of  service,  and  this  must  come 
from  within  and  not  from  without.  When  corporate  character  has 
been  established  and  a  disposition  exists  on  the  part  of  employees  to 
devote  to  the  institution  the  best  thought  they  have  to  give,  the  ques- 
tion of  corporate  efficiency  is  one  which  depends  on  the  exercise  of 
discretion  in  the  choice  of  agents.  But  the  exercise  of  this  discretion 
must  likewise  be  considered  in  any  system  of  effective  control ;  this 
cannot  be  supplied  by  government  inspection  or  legal  inquisition. 
The  control  which  makes  for  corporate  success  is  the  control  which 
encourages  the  larger  and  more  rapid  development  of  the  several 
forms  of  institutional  co-operation  through  which  the  largest  social 
welfare  may  be  attained.  This  control  must  be  within  the  corpora- 
tion itself  and  cannot  come  from  without. 

Legal  Provisions  for  Private  Corporate  Control. 

Before  the  committee  appointed  by  the  legislature  of  the  State 
of  New  York  to  investigate  the  management  of  the  insurance  socie- 
ties of  that  state,  one  of  the  directors  of  the  Equitable  Life  Assur- 
ance Society  of  the  United  States,  and  a  man  prominent  in  the  affairs 
of  many  corporations,  expressed  the  opinion  that  the  system  of  direc- 
torship in  the  great  corporations  of  to-day  is  such  that  a  director 
has  practically  no  power;  that  the  director  (representing  the  bene- 
ficial interests)  is  considered  a  negligible  quantity  by  the  executive 
officers  of  the  society;  that  especially  was  this  true  when  one  man 
obtained  control  over  the  affairs  of  the  association.  Whatever  may 
be  the  practice  or  usage  in  our  great  corporations,  this  statement 
does  not  accord  with  the  spirit  and  intent  of  the  law.  The  law  con- 
templates a  strict  control  over  the  corporation  by  those  holding  a 
beneficiary  interest.  As  before  suggested,  the  legal  provisions  made 
for  private  control  are  found  in  the  form  of  organization  prescribed. 
.  The  legal  principle  of  private  control  is  one  of  trusteeship — a  prin- 

[673] 


62  The  Annals  of  the  American  Academy 

ciple  most  carefully  and  righteously  guarded  by  the  courts  holdhig 
the  trustee  to  the  strictest  account.     The  trust  organization  as  an 
instrument  of  corporate  control  may  be  described  as  follows :     ( i ) 
As  a  means  of  rendering  possible  the  prevention  of  the  exercise  of 
arbitrary  power  on  the  part  of  a  single  stockholding  proprietor,  the 
stockholders,  as  such,  are  deprived  of  all  rights  or  powers  to  trans- 
act any  of  the  business  of.  the  corporation ;  no  proprietary  power  or 
franchise  of  the  corporation  is  placed  in  the  hands  of  the  stock- 
holders.    The  corporation  as  an  artificial  person  is  the  sole  owner 
and  entitled  to  the  exclusive,  constructive  possession  of  all  proper- 
ties ;  it  alone  has  the  right  to  exercise  powers  and  to  enjoy  corpo- 
rate privileges.     (2)  A  further  protection  to  the  shareholder  is  found 
in  the  fact  that  the  constructively  possessed  artificial  person   (the 
corporation)   to  which  has  been  entrusted  his  capital  has  in  itself 
no  power  to  act  except  through  living,  thinking,  morally  and  legally 
responsible  officers  or  agents  called  a  board  of  directors ;  these  are 
selected  by  a  majority  vote  of  the  shareholding  proprietors  of  the 
corporation.     (3)  To  make  corporate  trusteeship  the  more  secure, 
to  remove  still  farther  the  possibility  for  the  exercise  of  arbitrary 
power  on  the  part  of  those  in  control  of  the  corporation,  the  active 
business  of  the  company  is  taken  out  of  the  board ;  while  they  are 
the  direct  representatives  of  proprietors  and  beneficiaries  they  are 
permitted  to  act  in  a  representative  capacity  only,  being  in  the  posi- 
tion of  intermediaries  between  stockholders  and  beneficiaries  whom 
they  represent,  and  the  officers  appointed  by  them  to  carry  out  the 
details  of  the  business.     (4)  The  actual  possession  of  properties,  and 
the  current  operations  of  the  company  are  left  to  officers  or  agents — 
creatures  of  the  board  appointed  by  and  responsible  to  it.     This 
corporate  form  of  organization   is  intended  to  give  to  the  share- 
holder a  double  protection,  and  to  the  corporation  itself  a  triple  legal 
bulwark — a  triple  refinement  in  agency  responsibility.     On  the  first 
group,  the  shareholder,  rests  the  responsibility  for  expressing  the 
corporate  will  by  a  majority  vote,  and  for  the  selection  of  a  repre- 
sentative board.    The  second  group,  the  board  or  trustees  selected  by 
the  shareholders,  is  responsible  for  the  general  direction  to  be  given 
and  for  the  selection  of  the  active  agents  and  employees  of  the  com- 
pany.    The  third  group  is  responsible  to  the  company  through  the 
board ;  while  legally  under  the  control  of  the  directorate,  the  officers' 
ultimate  responsibility  is  to  the  stockholders — the  proprietors  not  of, 

[674] 


The  Relation  of  Auditing  to  Public  Control  63 

the  funds  and  properties,  but  of  the  corporation  which  owns  the 
funds  and  properties. 

With  this  form  of  organization  it  is  possible  to  institute  a  sys- 
tem of  corporate  administration  which  will  not  only  locate  personal 
responsibility  for  every  act  of  the  company,  but  will  also  accurately 
determine  the  fidelity  and  ability  of  each  agent.  The  problem  of 
corporate  administration  is  (i)  to  associate  together  a  group  of 
corporate  servants,  or  agents,  acting  under  a  legally  devised  system 
of  trusteeship  which  will  effectivel}^  co-operate  to  carry  out  the  pur- 
poses of  the  organization,  and  (2)  to  direct  this  co-operating  or 
serving  group  with  the  highest  intelligence  and  efficiency.  Private, 
corporate  control  goes  to  the  second  administrative  problem  above 
suggested,  viz.:  that  of  fidelity  (public  or  private)  to  the  purpose 
of  the  organization  and  to  the  intelligence  and  the  efficiency  with 
tvhich  each  corporate  agent  or  employee  conducts  himself.  The 
problem  of  corporate  control,  therefore,  must  be  considered  as 
having  two  significant  bearings:  (i)  being  a  creature  of  the 
state,  created  in  the  interest  of  public  welfare,  public  control  may 
be  exercised  to  the  end  that  public  interests  may  not  be  violated ; 
(2)  since  the  state  has  permitted  it,  as  an  institution,  to  receive  con- 
tributions of  capital  as  a  means  of  accomplishing  the  common  pro- 
prietary purpose,  provision  is  made  for  the  exercise  of  proprietary 
control  over  that  institution  and  its  agents  as  a  protection  to  those 
having  vested  rights. 

Factors  in  Effective  Private  Control. 

With  broader  co-operation  and  consolidation,  and  with  the  in- 
creased complexity  of  organization,  the  problem  of  private  corporate 
administration  becomes  an  increasingly  difficult  one.  Official  and 
proprietary  discretion  must  rest  on  intelligence.  Adequate  intelli- 
gence may  come  only  through  the  operation  of  a  thorough  system 
of  institutional  record,  inspection  and  account  such  as  will  give  to 
those  in  positions  of  control  an  accurate  knowledge  of  the  details 
and  results  of  business — a  system  of  control  which  will  give  to  each 
subordinate  full  credit  for  fidelity  and  ability,  as  well  as  mark  the 
infidel  and  the  incompetent  for  discipline  or  removal. 

To  be  effective,  a  system  of  private  or  institutional  control 
must  also  have  regard  to  the  several  classes  of  proprietary  and  trust 

[675] 


64  TJic  Ainials  of  the  American  Academy 

responsibility  provided  for  in  the  legal  form  of  organization.  Re- 
sponsibility for  administration  is  of  four  kinds:  (i)  The  proprietary 
responsibility  of  stockholders;  (2)  the  representative  responsibility 
of  a  board  ;  (3)  the  operative  responsibility  of  the  officer  and  of  his 
subordinates,  and  (4)  the  employees'  responsibility  to  those  in  di- 
recting position  for  intelligent  and  faithful  service.  Intelligent 
and  effective  corporate  .or  private  control,  and  the  protection  of 
those  interests  and  purposes  for  which  the  corporation  was  created 
and  capitalized,  demands  that  the  employee  shall  report  to  the  officer, 
that  the  officer  shall  report  to  the  board,  that  the  board  shall  report 
to  the  share-proprietor,  and  that  the  share-proprietors  shall  with 
integrity  perform  their  duties  toward  each  other,  toward  creditors 
and  the  public  in  the  exercise  of  proprietary  discretion.  To  the  end 
of  obtaining  accurate,  well-classified,  and  well-digested  information, 
answering  to  these  several  classes  of  resix)nsiblities  a  system  of 
subsidiary  and  controlling  accounts  is  devised  and  installed  by  which 
those  in  operative  and  directive  trust  relations  may  keep  an  accurate 
record  of  the  doings. 

TJic  Rclaliun  of  an  Audit  to  Corporate  Control. 

An  audit  pertains  not  to  public  control  but  to  a  system  of  private 
or  i)isfifutiojial  control ;  it  has  to  do  with  adminstrative  methods  with 
operative  results  obtained  by  the  corporation  as  a  working  group, 
and  not  with  questions  of  public  policy  or  public  welfare.  The  audit 
is  a  method  by  which  an  accountant  inspects  the  system  of  private 
administration  for  the  purpose  of  determining  whether  this  gives 
to  the  corporation  itself  and  to  the  corporate  proprietors  the  control 
which  is  intended  by  public  laws  of  trusteeship — to  determine  where 
this  control  is  weak  or  wanting,  and  where,  on  account  of  adminis- 
trative weakness  or  lack  of  control,  there  has  been  infidelity  or  in- 
efficiency in  the  service.  Looking  at  the  question  of  control  from 
the  view-point  of  corporate  success,  auditing  is  a  ])rimary  essential 
without  which  neither  the  share-proprietor,  the  board,  nor  the  officer 
himself  may  know  whether  the  agent  or  subordinate  has  been  faith- 
ful or,  for  that  matter,  the  institution  itself  has  fulfilled  the  purpose 
of  its  being.  The  audit  has  no  direct  relation  or  bearing  to  any 
method  or  system  of  public  control  as  exercised  under  democratic, 
as  distinguished  from  bureaucratic,  government. 

[676] 


The  Relation  of  Auditing  to  Public  Control  65 

The  Relation  of  an  Audit  to  Public  Welfare. 

There  are  two  general  aspects  of  public  interest  in  corporations, 
viz. :  that  which  looks  to  the  enforcement  of  charter  contracts  repre- 
senting ideals  of  public  policy  and  welfare,  and  that  which  would 
enforce  social  order  as  expressed  in  rules  of  business  integrity,  in 
performance  of  private  legal  obligations,  in  the  execution  of  private 
trusts,  etc.  Proceeding  from  the  assumption  that  the  government 
should  by  proper  legislation  provide  for  the  orderly  conduct  of  a 
business,  and  for  enforcing  the  performance  of  private  duty,  it  may 
be  held  that  in  addition  to  the  powers  of  inspection  by  the  govern- 
ment as  a  means  of  determining  whether  charter  provisions  have 
been  complied  with,  there  should  be  a  bureau  of  corporation  audits 
which  should  inquire  into  the  question  of  the  working  relations  of 
the  corporation.  This  argument,  however,  would  seem  to  be  vicious 
for  two  reasons :  Firsts  because  there  is  no  greater  or  stronger  reason 
for  the  government  inquiring  into  the  private  relations  of  corpora- 
tions as  a  means  of  protecting  parties  interested  against  the  infidelity 
of  others,  than  there  is  for  the  government  questioning  the  private 
relations  of  partners ;  in  fact,  under  the  legal  form  of  organization, 
a  corporation  which  has  installed  a  proper  system  of  private  control 
would  have  less  reason  for  the  government  inquiring  into  its  work- 
ing relations  since  there  is  every  legal  method  provided  for  holding 
officers,  agents  and  employees  to  the  strictest  account ;  there  is  no 
part  of  our  law  which  is  so  jealously  guarded  and  enforced,  as  is 
that  which  pertains  to  trustees — any  infraction  coming  to  the  atten- 
tion of  a  court  finds  remedy  in  civil  damages  and  exemplary  punish- 
ment under  the  criminal  code.  Second,  for  the  reason  that  the  cor- 
poration and  those  interested  in  the  corporation  are  in  a  much  better 
position  administratively  to  protect  themselves  through  a  system 
of  current  account  and  regular  audit  than  could  possibly  be  done 
by  a  bureau  or  branch  of  the  government. 

As  a  means  of  providing  for  the  orderly  conduct  of  the  business 
of  its  corporate  creature,  the  only  question  that  the  government  is  in- 
terested in  is  to  know  whether  or  not  the  corporation  has  installed  a 
method  of  record,  inspection  and  account  which  will  hold  its  officers 
and  agents  to  a  strict  account,  as  contemplated  in  the  form  of  corpo- 
rate organization  prescribed,  and  whether  or  not  an  independent  or 
disinterested  audit  has  been  provided  as  a  means  of  giving  assurance 

[677] 


66  The  Annals  of  the  American  Academy 

as  to  the  correctness  of  financial  or  operative  statements  made.  Such 
is  the  Enghsh  law  pertaining  to  corporations.  The  argument  in  sup- 
port of  this  is  that  the  corporation,  being  dependent  on  its  agents 
for  the  exercise  of  its  powers  and  for  the  use  of  its  properties  (its 
funds  and  other  resources  being  entrusted  to  them),  these  same 
agents  by  reason  of  their  position  having  in  their  hands  the  records 
and  accounts  through  which  proprietary  control  is  to  be  obtained, 
there  should  be  an  independent  or  disinterested  auditor  over  the 
system  who  is  not  responsible  to,  or  controlled  by  these  corporate 
agents.  When  it  is  reflected  that  the  welfare  of  the  nation  is  so 
largely  involved  in  the  integrity  of  corporate  agents,  much  force 
is  given  to  the  argument. 

Independoit  Audit  of  Corporatio)ts  as  a  Means  of  Control. 

Proceeding  from  the  assumption  that  the  government  should 
provide  for  the  means  whereby  corporate  integrity  may  be  estab- 
lished, two  systems  of  independent  audit  have  been  evolved:  (i) 
what  may  be  styled  the  Continental  system,  and  (2)  the  English  sys- 
tem. These  two  systems  have  grown  out  of  two  distinct  forms  of 
political  organization — the  one  arbitrary  and  bureaucratic,  the  other 
representative  and  democratic.  Under  the  German,  French  or  Rus- 
sian system  the  government  exercises  a  rigid  inspection,  and  con- 
ducts the  audit  of  corporations  through  which  the  public  looks  for 
protection.  The  success  of  such  a  method  depends  for  its  honesty 
and  efficiency,  in  the  first  place,  on  the  government  itself  being  free 
from  political  or  private  influence,  and,  in  the  second  place,  on  having 
within  it  the  highest  and  best  of  professional  intelligence.  Thus, 
in  Germany,  for  example,  it  is  in  the  service  of  the  government  that 
are  found  the  best  engineers,  the  best  financiers,  the  best  lawyers, 
the  best  accountants.  Again  in  Russia,  the  government  being  highly 
bureaucratic  undertakes  the  paternalistic  responsibility  for  the  pro- 
tection of  private  interests  represented  in  the  corporation;  it  does 
this  through  inspection  and  audit  as  a  means  of  determining  whether 
or  not  the  officers  and  agents  of  the  corporation  have  performed 
their  responsibilities  with  fidelity  and  efficiency. 

In  England,  the  governing  ideal  is  one  of  determining  by  public 
inspection  and  control  w^hether  or  not  the  corporation  has  complied 
with  the  charter  provisions,  making  it  a  condition  precedent  that  the 

[678] 


The  Relation  of  Auditing  to  Public  Control  67 

corporation  shall  provide  for  itself  an  independent  auditor,  holding 
him  (as  the  appointee  of  the  stockholders  or,  in  default  of  election 
at  a  regular  meeting,  as  the  appointee  of  the  government  for  the 
stockholders)  responsible  for  the  accuracy  of  statements  made  which 
would  reflect  the  fidelity  or  efficiency  of  corporate  agents.    To  quote 

from  "The  Companies  Act": 

» 

"Every  company  shall,  at  each  annual  meeting,  appoint  an  auditor  or 
auditors  to  hold  office  until  the  next  annual  general  meeting. 

"If  an  appointment  of  auditors  is  not  made  at  an  annual  general  meeting, 
the  Board  of  Trade  may,  on  the  application  of  any  member  of  the  company, 
appoint  an  auditor  of  the  company  for  the  current  year,  fix  the  remuneration 
to  be  paid  to  him  by  the  company'  for  his  service. 

"A  director  or  officer  of  the  company  shall  not  be  capable  of  being  ap- 
pointed auditor  of  the  company.     .     .     . 

"Every  auditor  of  the  company  shall  have  a  right  of  access,  at  all  times, 
to  the  books,  accounts  and  vouchers  of  the  company,  and  shall  be  entitled  to 
require  from  directors  and  officers  of  the  company  such  information  and 
explanation  as  may  be  necessary  for  the  performance  of  the  duties  of  the 
auditors,  and  the  auditors  shall  sign  a  certificate  at  the  foot  of  the  Ijalance 
sheet,  stating  whether  or  not  all  of  their  requirements  as  auditors  have  been 
complied  with,  and  shall  make  a  report  to  the  stockholders  on  the  accounts 
examined  by  them,  and  on  every  balance  sheet  laid  before  the  company  in 
general  meeting  their  tenure  of  office ;  and  in  every  such  report  shall  state 
whether  or  not,  in  their  opinion,  the  balance  sheet  referred  to  in  the  report  is 
properly  drawn  up  so  as  to  exhibit  a  true  and  correct  view  of  the  state  of 
the  company's  affairs,  as  shown  by  the  books  of  the  company;  and  such 
report  shall  be  read  before    the  company  in  general  meeting. 

"If  any  person,  in  any  return,  report  certificate,  balance  sheet,  or  other 
document  required  by  or  for  the  purpose  of  this  act,  wilfully  makes  a  state- 
ment false  in  any  material  particular,  knowing  it  to  be  false,  he  shall  be  guilty 
of  a  misdemeanor,  and  shall  be  liable,  on  conviction,  and  on  indictment,  to 
imprisonment  for  a  term  not  exceeding  two  years,  with  or  without  hard  labor, 
and  on  summary  conviction  to  imprisonment  for  a  term  not  exceeding  four 
months,  with  or  without  hard  labor;  and  in  either  case  to  a  fine  in  lieu  of, 
or  in  addition  to  such  imprisonment  aforesaid." 

When  we  reflect  on  the  efiforts  at  corporate  regulation  through 
public  examination  and  on  the  failure  of  attempts  made  in  this  coun- 
try to  regulate  the  affairs  of  corporations  through  public  examina- 
tion, we  may  well  question  the  propriety,  as  has  England,  of  relying 
on  bureaucratic  methods  for  the  protection  of  private  interests,  espe- 
cially when  these  private  interests  are  in  a  much  stronger  position  to 
bring  evidences  of  irregularity  before  the  courts  and  enforce  their 

[679] 


68  The  Annals  of  the  American  Academy 

rights.  The  English  system  is  one  which  places  on  the  stockholders 
themselves  (the  proprietors  of  the  corporation)  the  duty  of  provid- 
ing the  means  of  effective  control — one  which  places  on  the  joint 
proprietors  of  the  corporation  (the  stockholders)  the  duty  of  ap- 
pointing an  independent  auditor  for  the  critical  inspection  or  exami- 
nation of  the  system  installed  and  operated  by  the  officers  of  the 
company.  It  is  as  necessary  as  is  the  appointment  of  any  other 
officer  in  default  of  which  a  department  of  the  government  may 
assign  an  independent  auditor  to  duty.  That  the  officer  may  know 
whether  the  report  of  the  employee  is  to  be  relied  on,  that  the  direc- 
tor may  have  a  true  record  of  results  from  the  officer  in  charge, 
and  that  the  stockholder  may  have  before  him  a  proper  basis  for 
estimate  of  integrity  and  ability  of  the  several  forms  of  corporate 
trustees  and  agents,  the  law  requires  that  a  corporation  before  it 
shall  begin  business  shall  choose,  among  other  officers,  an  inde- 
pendent auditor  who  shall  be  in  no  way  interested  in  the  business, 
who  shall  certify  to  the  correctness  of  reports,  and  who  shall  become 
responsible,  both  civilly  and  criminally,  for  the  truth  of  the  state- 
ments made  over  his  certificate.  This  is  not  only  a  legal  recognition 
of  the  importance  of  the  audit  to  effective  administrative  control, 
but  it  is  also  a  recognition  of  the  duty  of  government  to  provide  the 
conditions  most  favorable  to  success  in  the  administration  of  an 
institution  created  in  the  interest  of  public  welfare  and  dependent 
on  trustees  for  its  operation.  It  is  a  provision  which  requires  the 
establishment  of  conditions  necessary  to  an  intelligent  knowledge  of 
affairs.  It  protects  the  corporation  by  permitting  it  to  choose  its 
own  auditor.  It  protects  the  public  and  insures  to  it  the  highest 
social  return  by  putting  into  the  hands  of  the  corporate  authorities 
the  means  whereby  the  institution  may  attain  the  best  corporate 
result.  In  the  English  system  is  found  the  best  method  for  the 
administrative  control  of  corporations  that  has  been  devised.  True 
to  the  purposes  of  its  enactment  "The  Companies  Act"  of  England 
has  most  effectively  regulated  the  corporations  coming  under  its 
jurisdiction  without  submitting  the  companies  themselves  to  pry- 
ing inquisition  and  to  the  blackmailing  possibilities  of  corrupt  and 
inefficient  officials. 


FEDERAL    SUPER VISI(3N    AND   REGULATION   OF 

INSURANCE 


Bv  S.  HuEBNER,  Pit.  D., 

Instructor  in  Insurance  and  Commerce,  University'  of  Pennsylvania. 


The  agitation  for  the  federal  supervision  and  regulation  of  the 
insurance  business  must  be  viewed  as  marking  a  step  in  that  gradual 
extension  of  federal  control  over  industry  and  commerce  which  is 
asserting  itself  more  and  more  with  the  increasing  intimacy  of  com- 
mercial relations  irrespective  of  state  lines,  and  which  is  bound  to 
continue  until  ultimately  every  important  commercial  interest  whose 
practice  is  national  in  scope  shall  have  been  brought  within  the  reach 
of  federal  law.  Beginning  as  a  local  business,  insurance  has  devel- 
oped into  a  colossal  institution,  national  and  international  in  scope, 
and  involving,  as  the  President  stated  in  his  annual  message  to 
Congress,  "a  multitude  of  transactic^is  among  the  people  of  the 
different  states  and  between  American  companies  and  foreign  gov- 
ernments." Into  this  important  field  of  business,  always  regarded 
heretofore  as  within  the  control  of  the  several  states  alone,  it  is  now 
proposed  to  extend  the  power  of  the  national  government,  and  to 
such  an  extent  that  the  authority  of  the  states,  although  not  com- 
pletely eliminated,  will  become  merely  incidental. 

Certainly  this  is  a  most  radical  change  in  view  of  the  vastness 
of  the  interests  involved.  According  to  recent  estimates,^  it  appears 
that,  even  excluding  the  business  of  the  large  number  of  fraternal 
beneficiary  associations  and  local  nuttual  fire  companies,  the  amount 
of  insurance  in  force  in  the  United  States  aggregates  $50,000,000,- 
000,  while  the  assets  of  the  companies  have  accumulated  to  the  gigan- 
tic sum  of  $3,000,000,000.  Each  year,  it  is  estimated,  that  the  i)eople 
of  the  United  States,  approximately  20,000,000  of  whom  are  directly 
interested  in  insurance  as  policyholders,  pay  $1,000,000,000  in  pre- 

'  Majority  Report  of  the  Ccniimittce   on  Insurance   Law   presented  at   the  meeting  of  the 
American  Bar  Association,  August  24,  190s. 

[6S1] 


70  The  Annals  of  the  American  Academy 

miums  to  insurance  companies,  and  receive  approximately  $800,000,- 
000  in  return.  The  magnitude  and  importance  of  the  business  as 
indicated  by  these  figures  can  scarcely  be  comprehended,  and,  being 
in  the  main  a  business  of  trust,  the  necessity  for  strict  government 
supervision  must  be  apparent.  Indeed,  the  supervision  of  insurance 
by  the  government  is  to-'day  regarded  as  an  absolute  necessity  by 
every  authority  on  the  subject,  and  is  considered  even  more  essential 
than  in  the  case  of  banks.  Insurance  contracts,  especially  in  life 
insurance,  may  run  for  years  before  maturing,  the  possibility  always 
presenting  itself  of  a  company  promptly  paying  its  current  claims, 
and  yet  being  hopelessly  insolvent  as  regards  its  future  obligations. 
Moreover,  it  is  practically  impossible  for  the  individual  to  determine 
lor'himself  the  financial  standing  of  the  company  into  whose  care  he 
has  entrusted  the  protection  of  himself  and  family,  into  whose 
coffers  he  has  paid  his  premiums  for  years,  and  upon  whose  ability 
to  pay  when  the  time  comes  he  implicitly  relies.  The  only  way 
to  determine  the  solvenc)^  of  an  insurance  company  is  to  calcu- 
late the  present  worth  of  its  future  obligations,  and  to  compare 
this  and  the  accrued  liabilities  with  the  available  assets.  This 
is  a  task  be)''ond  the  power  of  individuals,  many  of  whom  have 
little  information  about  insurance  except  the  name  of  the  company 
whose  policy  they  hold.  It  is  a  task  which  can  be  adequately  under- 
taken only  by  the  government;  but,  while  there  is  a  consensus  of 
opinion  regarding  the  necessity  of  government  supervision,  the  ques- 
tion as-to  whether  the  supervising  authority  ought  to  be  the  nation 
or  the  several  states  has  been  a  disputed  one  for  over  forty  years, 
and  ,as  we  shall  see,  is  still  far  from  settlement. 

Historical  Reviezv  of  the  Subjects 

The  question  of  national  versus  state  regulation  of  insurance 
may  be  said  to  have  had  its  origin  in  the  passage  of  the  National 
Banking  Act  of  1864.  Although  applying  only  to  banks  this  act  sug- 
gested the  possibility  of  extending  federal  control  to  the  insurance 
business.  In  the  very  next  year  Congress  was  memorialized  by 
certain  companies  to  free  them  from  many  of  the  vexatious  bur- 
dens  connected  with   state   supervision.     It  was   proposed    in   the 

^  For  a  detailed  account  of  the  history  of  this  subject  see  John  F.  Dryden's  "An  Address 
on  the  Regulation  of  Insurance  by  Congress,"  delivered  ai  a  meeting  of  the  Boston  Life 
Underwriters'  Association,  November  22,  1904. 

[682] 


Federal  Supervision  mid  Regulation  of  Insurance  7 1 

memorial  that  Congress  should  pass  a  national  incorporation 
act  which  would  enable  insurance  companies,  like  national  banks, 
to  become  federal  institutions.  A  bill  to  this  effect  was  introduced 
in  the  Senate  in  1868,  but  met  with  the  fate  that  awaits  any  meas- 
ure which  attempts  to  take  away  the  constitutional  right  of  the  sev- 
eral states  to  create  corporations  engaged  in  interstate  commerce. 
But  while  this  bill  received  little  support,  it  is  important  to  note 
that  at  this  early  date,  when  insurance  was  much  more  in  the  nature 
of  a  local  institution  than  now,  national  supervision,  nevertheless, 
claimed  among  its  supporters  some  of  the. most  influential  men  con- 
nected with  the  insurance  business.  Mr.  Elizur  Wright,  for  ex- 
ample, often  called  the  father  of  state  insurance  supervision,  upheld 
federal  control  most  vigorously  upon  the  ground  that  it  would 
greatly  simplify  matters  and  be  much  more  economical  than  state 
regulation ;  that  it  would  protect  the  policyholders  equally  well,  if 
not  better ;  and  that  insurance  was,  by  its  very  nature,  a  national 
interest  and  better  adapted  to  federal  than  local  control. 

In  the  same  year  that  the  bill  providing  for  the  national  incor- 
poration of  insurance  companies  was  introduced,  there  occurred 
another  event  which  completely  changed  the  status  of  the  problem 
of  national  supervision,  and  which  has  been  inseparably  connected 
with  the  discussion  of  the  subject  from  that  date  to  this.  This  new 
factor  was  the  famous  case  of  Paul  vs.  Virginia,  decided  by  the 
United  States  Supreme  Court  in  1868,  and  confirmed  in  later  de- 
cisions, according  to  which  the  issuance  of  a  policy  of  insurance  was 
declared  not  a  transaction  of  commerce  and  therefore  not  subject  to 
federal  control.  Although  this  case,  as  w^ell  as  those  that  followed, 
did  not  bear  directly  on  the  point  at  issue,  the  opponents  of  national 
supervision  have  always  assumed  that  in  view  of  these  decisions, 
the  Supreme  Court  w^ould  declare  unconstitutional  any  act  seek- 
ing to  deprive  the  states  of  their  present  right  to  supervise  that  part 
of  the  insurance  business  which  is  interstate  in  character. 

The  unfavorable  decision  of  Paul  vs.  Virginia  and  the  defeat 
of  the  bill  of  t868  did  not,  however,  crush  the  movement  for  federal 
regulation.  For  the  next  twenty-five  years  its  advocates  waged  an 
educational  campaign  which  resulted,  at  least,  in  the  development 
of  a  most  extensive  literature  on  the  subject.  Finally,  in  1892,  things 
seemed  ready  for  another  attempt  at  congressional  legislation.  In 
that  year  Mr.  John  N.  Pattison,  president  of  the  Union  Central  Life 

[683]  ■ 


72  TJic  A)inals  of  the  American  Academy 

Insurance  Company,  introduced  a  bill  providing  for  a  system  of 
national  regulation  of  insurance  companies  engaged  in  interstate 
business.  Such  companies  were  to  report  to  a  National  Bureau  of 
Insurance,  and  were  thereafter  to  be  exempt  from  all  other  require- 
ments except  those  which  Congress  or  the  states  from  which  they 
had  secured  their  charters  might  see  fit  to  impose.  Owing,  how- 
ever, to  its  being  weighted  down  with  too  many  provisions  of  detail, 
the  bill  invoked  sufficient  opposition  to  prevent  its  becoming  a  law. 
In  1897  the  matter  once  more  came  before  Congress  in  the  form  of 
the  'Tlatt  Bill,"  modelled  closely  after  the  "Pattison'Bill"  of  1892,  but 
again,  owing  largely  to  the  pressure  of  other  business  connected  with 
the  Spanish-American  War,  the  bill  failed  to  secure  favorable  action. 
The  next  important  step  in  the  movement  for  federal  supervision 
was  the  establishment  of  the  new  Department  of  Commerce  and 
Labor  on  February  14,  1903.  This  department  was  authorized, 
through  the  Bureau  of  Corporations,  "to  gather,  compile,  publish  and 
supply  useful  information  concerning  such  corporations  doing  busi- 
ness within  the  limits  of  the  United  States,  as  shall  engage  in  inter- 
state commerce  or  in  commerce  between  the  United  States  ancl  any 
foreign  country,  including  corporations  engaged  in  insurance." 
While  not  of  far-reaching  importance,  this  act,  nevertheless,  meant 
an  advance,  since  it  marks  the  first  successful  attempt  on  the 
part  of  the  federal  government  to  recognize  insurance  as  a  busi- 
ness which  demands  national  and  not  merely  local  attention.  Then 
on  December  8,  1904,  followed  President  Roosevelt's  message  to 
Congress  in  which  he  declared  insurance  to  be  a  business  which 
"vitally  affects  the  great  mass  of  the  people  of  the  United  States 
and  is  national  and  not  local  in  application,"  and  in  which  he 
urged  that  "Congress  carefully  consider  whether  the  power  of 
the  Bureau  of  Corporations  cannot  constitutionally  be  extended 
to  cover  interstate  transactions  in  insurance."  Following  this  ex- 
pression of  Executive  approval  came  the  bill  of  December  12, 
1904,  introduced  in  the  House  by  Mr.  Edward  Morrell,  but  which 
was  referred  to  the  Committee  on  Interstate  and  Foreign  Commerce. 
Lastly,  we  have  the  bill  introduced  in  the  Senate  by  Mr.  John  F. 
Dryden,  president  of  the  Prudential  Insurance  Company  of  America. 
This  bill  marks  the  latest  attempt  to  secure  national  supervision 
through  congressional  action,  and  represents  better  than  all  former 
bills  the  present-day  requirements  of  such  legislation. 

[684] 


Federal  Supervision  and  Regulation  of  Insurance  73 

Briefly  summarized,  the  bill  introduced  by  Senator  Dryden  pro- 
vided for  an  official  in  the  Bureau  of  Corporations  called  the  Superin- 
tendent of  Insurance.  This  official  was  to  be  appointed  by  the  Presi- 
dent and  placed  in  charge  of  a  bureau  called  the  Division  of  Insur- 
ance, and  was  to  be  assisted  by  an  official  known  as  the  National 
Actuary.  Policies  of  insurance  were  deemed  by  the  bill  to  be  "ar- 
ticles of  commerce  and  instrumentalities  thereof,"  and  the  delivery 
of  contracts  of  insurance  or  the  transmisson  of  premiums  or  other 
sums  between  the  several  states  or  between  this  nation  and  other 
nations  were  declared  transactions  in  interstate  or  foreign  commerce. 
Express  provision  was  made,  however,  that  "the  provisions  of  this 
act  shall  not  apply  to  any  corporation  transacting  the  business  of 
insurance  exclusively  within  one  state,  district  or  territory :  and 
provided  further,  that  this  act  shall  have  no  application  to  any  relig- 
ious, charitable,  benevolent  or  purely  fraternal  society  or  associa- 
tion." The  superintendent  of  insurance  was  authorized  to  require 
reports  in  any  form  he  might  choose  to  prescribe  from  the  various 
companies  transacting  an  interstate  or  foreign  insurance  business, 
and  might  also  examine  the  business  of  such  companies  whenever 
he  saw  fit.  Every  company  was  to  file  with  the  superintendent  a 
certified  copy  of  its  charter  and  by-laws  together  with  its  last  state- 
ment, and  was  also  to  make  a  deposit  with  the  Treasurer  of  the 
United  States,  as  a  guarantee  for  the  faithful  performance  of  its 
contracts.  United  States  bonds  or  other  securities  satisfactory  to  the 
superintendent  to  the  amount  of  $100,000,  unless  the  superintendent 
would  accept  as  satisfactory  a  similar  deposit  in  the  state  where  the 
company  had  secured  its  charter.  After  all  these  requirements  had 
been  complied  with,  the  superintendent  was  to  grant  a  license  to  the 
company  authorizing  it  to  transact  such  interstate  or  foreign  business 
in  any  or  all  parts  of  the  Union.  Provision  was  also  made  that  if  a 
foreign  nation  should  refuse  American  companies  such  a  license  or 
should  subject  them  to  rules  and  regulations  different  from  those 
applying  to  companies  having  their  origin  in  the  said  foreign  country, 
then  the  superintendent  was  to  refuse  such  a  license  to  the  companies 
of  that  country  transacting  or  seeking  to  transact  business  here,  and 
was  to  subject  them  to  the  same  rules  and  regulations  applied  by 
the  foreign  country  against  American  companies. 

Although  containing  many  admirable  provisions,  the  bill,  as  out- 
lined, was  introduced  too  late  in  the  session  to  secure  proper  consid- 

.      [685] 


74  The  Annals  of  the  American  Academy 

eration.  There  is  every  reason  to  believe,  however,  in  view  of  the 
President's  attitude  on  the  question,  and  the  increasing  demand  for 
such  legislation,  that  the  same  or  a  similar  bill  will  be  introduced  in 
the  coming  Congress.  All  previous  attempts  to  secure  federal  con- 
trol of  interstate  insurance,  it  is  true,  have  come  to  naught.  But  at 
the  same  time  it  cannot  b"e  denied  that  public  sentiment  is  steadily  . 
growing  in  favor  of  federal  supervision.  To  quote  the  Committee  on 
Insurance  Law  of  the  American  Bar  Assoociation :  "No  one  has  of- 
fered any  substantial  reason  against  federal  supervision  and  it  is 
advocated  by  the  President  of  the  United  States,  and  many  state 
insurance  commissioners,  and  favored  by  leading  insurance  officials 
and  numerous  insurance  journals.  Besides  these,  the  general  press  is 
in  favor  of  any  movement  in  the  direction  of  greater  corporate  pub- 
licity, and  the  patrons  of  insurance — the  people — favor  federal  su- 
pervision of  the  business  as  the  national  banks  are  supervised."^ 

Arguments  in  Favor  of  National  Supervision. 

But  what  are  the  reasons,  it  will  be  asked,  which  are  thus  mould- 
ing public  sentiment  in  favor  of  national  supervision  ?  A  full  answer 
to  this  question  is  quite  impossible  for  the  present,  since  the  argu- 
ments which  have  been  advanced  from  time  to  time  are  exceedingly 
numerous.     Briefly  stated,  the  principal  arguments  are: 

1.  That  national  supervision  will  greatly  lessen  the  unnecessarily 
large  cost  of  supervising  insurance  companies  by  fifty-two  separate 
state  and  territorial  departments,  and  that  by  thus  lessening  the 
ex])ense  it  will  decrease  the  cost  of  insurance. 

2.  That  it  will  obviate  much  of  the  burdensome  and  discrimi- 
natory taxation  now  imposed  by  the  several  states  upon  insurance 
companies  of  other  states. 

3.  That  it  is  the  only  means  of  remedying  the  present  lack  of 
uniformity  in  our  state  insurance  laws ;  that  it  will  be  a  step  toward 
uniform  regulation  and  supervision  of  insurance  companies ;  and  that 
it  will  afiford  relief  from  the  many  petty  exactions  imposed  by  the 
different  state  departments,  as  well  as  from  the  evils  resulting  from 
variations  in  the  rulings  of  the  several  insurance  commissioners. 

4.  That  it  will  afford  better  protection  to  policyholders,  and  will 
result  in  the  elimination  of  fraudulent  insurance  enterprises. 

'  Page  s  of  the  Report  of  the  Committee  on  Insurance  Law,  presented  at  the  meeting  of 
the  American  Bar  Association  at  Narragansett  Pier,  R.  I.,  August  24,  igos. 

[686] 


Federal  Supervision  and  Regulation  of  Insurance  7  5 

5.  That  it  will  entitle  any  insurance  company  reporting  to  the 
national  government  to  transact  business  in  all  parts  of  the  Union, 
at  the  same  time  protecting  that  company  against  the  retaliatory 
legislation  of  other  states. 

6.  That  foreign  countries  would  regard  with  much  more  weight 
the  certificates  issued  by  a  national  department,  and  that  the  federal 
authorities  would  be  in  a  much  better  position  both  to  protect  Amer- 
ican companies  transacting  business  abroad  and  to  supervise  the 
large  number  of  foreign  companies  transacting  business  in  the  United 
States. 

7.  That  centralized  supervision  by  trained  experts  would  enable 
the  national  government  at  small  expense  to  provide  for  a  much 
greater  degree  of  publicity  as  regards  this  most  important  busi- 
ness than  is  possible  at  the  present  time.  Information  regard- 
ing the  principles,  operation  and  condition  of  the  business  could  be 
disseminated  throughout  the  country  in  clear  and  concise  form  as 
contrasted  with  the  confusing,  voluminous  and  often  meaningless 
mass  of  statistics  issued  from  time  to  time  by  many  of  the  state  in- 
surance departments. 

8.  That  insurance  is  both  in  theory  and  in  practice  a  national 
and  international  business,  and  not  a  fit  subject  for  state  or  local 
control. 

Directing  our  attention  to  a  more  detailed  examination  of  the 
above  contentions,  it  would  seem  to  require  but  little  argument 
to  show  that  state  supervision  and  regulation  has  proved  need- 
lessly burdensome  and  expensive.  Although  an  institution  which 
does  not  create  wealth,  but  merely  equalizes  misfortune  and 
aims  to  protect  the  individual  and  the  family  against  loss,  insur- 
ance has,  nevertheless,  been  subjected  to  a  multitude  of  taxes  and 
fees,  until  to-day  it  is  estimated  that  the  business  contributes  the 
enormous  sum  of  between  $20,000,000  and  $25,000,000  annually  to 
the  treasuries  of  the  various  states.  Nor  does  this  enormous  charge 
bear  any  direct  relation  to  the  service  rendered  by  the  states  in  the 
way  of  supervision.  Instead,  it  appears  from  a  recent  compilation  of 
data  furnished  by  twenty-eight  states,  that,  exclusive  of  all  taxation, 
over  $5,000,000  more  was  collected  by  these  states  than  was  needed 
to  defray  the  cost  of  supervision.  In  England  for  example,  efforts 
are  made  to  encourage  a  business  so  essential  to  the  family  and 
the  state  and  so  promotive  of  the  community's  interests  as  insur- 

[687] 


76  The  Ajuials  of  the  Atnerican  Academy 

ance,  by  exempting-  a  portion  of  every  income  if  expended  for  that 
purpose.  In  the  United  States,  however,  despite  the  fact  that  insur- 
ance is  itself  a  tax  which  in  the  end  must  fall  upon  the  community, 
and  that  by  protecting  the  family,  encouraging  thrift  and  supporting 
industry,  it  relieves  the  state  from  large  expenditures  which  would 
otherwise  have  to  be  incurred,  the  various  state  legislatures  have 
nevertheless  vied  with  one  another  in  reaching  the  funds  of  insur- 
ance companies  through  taxes  and  fees  of  every  sort  and  descrip- 
tion. In  fact,  the  insurance  departments  of  many  states,  since  they 
accept  without  question  the  examinations  made  by  a  few  of  the 
more  important  states,  have  become  nothing  more  than  salary- 
earning  and  tax-collecting  agencies.  There  can  be  no  doubt  that 
if  federal  control  over  interstate  insurance  can  be  constitution- 
ally established,  the  large  and  unequal  tax  burden  upon  insurance 
companies  can  be  largely  removed,  and  existing  taxes  properly 
applied.  Similarly  the  expenses  of  supervising  the  business  through 
fifty-two  separate  departments  can  probably,  as  has  been  estimated, 
be  reduced  to  one-tenth  its  present  amount. 

But  quite  as  flagrant  as  the  tax  abuse  and  the  large  cost  of 
supervising  the  business  is  the  absolute  lack  of  uniformity  in  our 
state  insurance  laws.  If  a  compilation  of  these  laws  were  attempted 
a  most  curious  spectacle  would  be  the  result.  It  would  be  found  that 
the  fifty-two  states  and  territories  are  all  acting  along  independent 
lines  and  that  each,  as  has  been  correctly  said,  possesses  "its  own 
schedule  of  taxes,  fees,  fines,  penalties,  obligations  and  prohibitions, 
and  a  retaliatory  or  reciprocal  provision  enabling  it  to  meet  the 
highest  charges  any  other  state  may  require  of  companies  of  other 
states." 

In  the  field  of  taxation,  for  example,  there  is  neither  method  nor 
uniformity  of  rate.  Some  states  will  tax  premiums  after  allowing 
for  losses  and  expenditures  within  the  state,  while  others  will  tax 
gross  premiums  without  any  deduction,  thus  presenting  the  interest- 
ing anomaly  of  companies  being  taxed  upon  their  losses  and  ex- 
penses. Again,  in  addition  to  the  usual  property  tax,  there  is  the 
large  variety  of  fees  imposed  for  the  right  to  enter  a  state  to  trans- 
act business,  for  municipal  licenses,  for  filing  documents,  or  for 
licensing  agents.  Nothing  perhaps  more  forcibly  illustrates  the 
unequal  and  unscientific  character  of  state  taxation  with  reference 
to  the  insurance  business  than  the  experience  of  the  New  York  Life 

[68S] 


Federal  Supervision  and  Regulation  of  Insurance  77 

Insurance  Company  some  years  ago.  As  regards  twenty-five  states 
where  the  insurance  in  force  aggregated  $317,000,000  the  taxes 
amounted  to  only  $23,000,  while  in  the  twenty-four  other  states  and 
territories  representing  $313,000,000  of  insurance  the  company  paid 
$207,000  in  taxes.'* 

In  addition  to  the  evils  of  unscientific  and  unequal  taxation  of 
insurance  companies  it  is  also  important  to  remember  that  the  state 
legislatures  at  each  session  enact  a  multitude  of  new  laws,  many  of 
them  detrimental  to  the  interests  of  the  public,  certainly  annoying  to 
the  companies,  and  frequently  in  direct  conflict  with  the  laws  of 
other  states.  Especially  in  fire  insurance  have  the  evils  of  state 
legislation  become  clearly  apparent.  Despite  the  general  introduc- 
tion of  a  uniform  fire  policy  in  the  United  States,  its  provisions  have 
given  rise  to  a  great  diversity  of  judicial  opinion  in  the  several  states, 
so  that  its  provisions  mean  one  thing  in  one  state,  another  thing 
in  a  second  state,  and  are  prohibited  in  a  third.  At  present  nearly 
one-third  of  the  states  have  anti-compact  laws,  nearly  one-fourth 
prohibit  the  use  of  the  co-insurance  clause,  nearly  one-half  have 
enacted  valued  policy  laws,  while  nearly  three-fourths  possess  re- 
taliatory enactments — all  of  which  legislation  can  only  be  charac- 
terized as  opposed  to  the  underlying  principles  of  insurance,  and 
detrimental  to  the  best  interests  of  the  public.  Other  states,  again, 
seek  to  prohibit  the  company  from  applying  for  the  removal  of  an 
action  from  a  state  to  a  federal  court  on  pain  of  having  its  license 
revoked.  Then  there  are  the  evils  resulting  from  the  different 
rulings  and  demands  of  the  insurance  commissioners  of  the  same 
state  and  of  the  various  states.  Finally,  there  is  the  right,  frequently 
exercised  and  leading  to  duplicate  and  uncalled  for  examinations,  of 
the  various  insurance  commissioners  to  examine  all  companies  trans- 
acting business  in  their  state  whenever  they  see  fit  and  at  the  com- 
pany's expense. 

Examples  like  these  might  be  greatly  multiplied,  if  space  per- 
mitted, to  show  the  evils  of  the  present  system.  Suffice  it  to  say 
that  many  insurance  commissioners  are  fully  aware  of  these  evils, 
and  have  not  hesitated  to  declare  their  views  in  favor  of  a  change. 
Even  a  supporter  of  state  supervision  like  Mr.  S.  H.  Wolfe,  re- 
cently expressed  his  dissatisfaction  with  the  existing  system  of 
insurance  laws  in  the  following  words :  "Each  state  has  an  insur- 

*  Fricke's  text  book  on  Insurance,  page  14. 

[689] 


78  The  AiDials  of  the  American  Academy 

ance  code  of  its  own,  and  the  difficulties  and  annoyances  which 
insurance  companies  experience  in  trying  to  comply  with  fifty  differ- 
ent sets  of  laws  may  well  be  imagined.  There  is  a  crying  need  for 
uniformity  in  this  matter,  and  for  a  radical  change  in  the  laws  of 
all  the  states.  I  know  of  no  one  state  which  possesses  a  code  of 
insurance  laws  which  may  even  be  termed  reasonably  satisfactory. 
The  insurance  business  has  attained  such  proportions,  and  con- 
tributes so  liberally  through  taxation  to  the  income  of  the  state, 
that  it  is  entitled  to  more  equitable  and  reasonable  treatment  than 
it  is  receiving  at  present."^ 

Whether  this  state  of  affairs  can  be  changed  under  the  present 
system  may  well  be  doubted.  Certainly  the  difficulties  of  unifying 
and  controlling  the  action  of  fifty  or  more  legislatures  and  the  same 
number  of  insurance  departments  with  reference  to  the  much  mis- 
understood subject  of  insurance,  may  well  be  questioned  in  view  of 
our  past  and  present  experience.  It  seems  to  be  beyond  reasonable 
doubt  that  if  Congress  could  constitutionally  create  a  national  insur- 
ance department,  possessed  of  the  same  powers  now  exercised  by 
the  fifty-two  state  and  territorial  departments,  and  place  it  in  charge 
of  competent  men  holding  their  positions  by  reason  of  special  fitness 
rather  than  political  affiliations,  much  of  the  heavy  and  discrimina- 
tory taxation,  unnecessary  expense,  and  lack  of  uniformity  in  legis- 
lation and  supervision  could  be  eliminated.  There  can  be  little 
doubt  also  that  centralized  supervision  could  be  made  much  more 
effective  than  state  supervision  in  extending  publicity ;  in  protecting 
American  companies  abi'oad,  and  supervising  foreign  companies 
transacting  business  in  this  country ;  in  granting  protection  to  the 
insurance  companies  of  one  state  against  the  retaliatory  acts  of  other 
states ;  and  in  affording  additional  protection  to  policyholders 
by  using  the  strong  arm  of  the  federal  government  in  stamping  out 
fraudulent  enterprises. 

Insurance  in  Theory  and  in  Practice  is  an  Interstate  Business. 

Aside  from  the  arguments  just  advanced  in  favor  of  national 
regulation,  it  is  important  to  note  that  insurance  is  both  in  theory 
and  in  practice  an  interstate  business.    To  derive  the  benefit  of  the 

*  See  S.  H.  Wolfe's  lecture  on  State  Supervision  of  Insurance  Companies  in  The  Annals 
of  the  American  Academy  of  Political  and  Social  Science,  September,  1905,  page  141. 

[690] 


Federal  Supervision  and  Regulation  of  Insurance  79 

law  of  average  which  fundamentally  underlies  the  successful  opera- 
tion of  all  forms  of  insurance,  it  is  essential  that  the  business 
should  be  spread  over  as  wide  a  field  as  possible.  Hence  it  is  that 
the  development  of  the  business  has  naturally  and  necessarily  been 
national  and  international  rather  than  local.  In  fact,  the  proportion 
of  insurance  written  by  American  companies  in  the  states  where 
they  were  organized  is  exceedingly  small,  while  the  interstate  busi- 
ness and  the  business  transacted  by  American  companies  abroad 
and  by  foreign  companies  on  American  soil  is  suprisingly  large. 
In  life  insurance,  for  example,  it  appears  that  in  the  case  of 
twenty  leading  companies,  transacting  nearly  nine-tenths  of  the 
total  ordinary  life  insurance  of  the  country,  only  15.5  per  cent, 
of  the  total  amount  of  their  outstanding  policies  is  held  in  the 
home  state,  only  14.5  per  cent,  of  the  new  policies  are  issued 
in  the  home  state,  and  only  12.6  per  cent,  of  the  total  premium 
income  is  collected  there.  Even  in  the  case  of  the  four  largest  com- 
panies in  America,  domiciled  in  the  wealthy  and  thickly  populated 
State  of  New  York,  considerably  less  than  one-fifth  of  the  total 
business  is  intrastate,  while  over  four-fifths  is  interstate  and  inter- 
national. 

In  the  case  of  fire  and  marine  insurance  the  situation  is  equally 
striking.  The  seventeen  largest  fire  insurance  companies  of  New 
York,  with  risks  exceeding  $50,000,000  each  and  with  a  combined 
total  of  risks  aggregating  $5,740,000,000,  wrote  only  25  per  cent,  of 
their  business  during  1903  in  the  home  state,  and  received  only  16.7 
per  cent,  of  their  premium  income  from  the  intrastate  business.  In 
Pennsylvania  the  respective  percentages  for  the  same  class  of  com- 
panies (with  risks  of  $1,636,000,000)  were  only  10.5  per  cent,  and 
10  per  cent. ;  ^-hile  in  the  case  of  eighteen  American  companies  be- 
longing to  the  same  class,  but  domiciled  outside  of  New  York  and 
Pennsylvania,  and  carrying  risks  of  $5,520,000,000,  the  proportion 
of  the  new  business  written  and  the  premiums  received  in  the  home 
state  amounted  to  only  5.3  per  cent,  and  4.9  per  cent,  of  the  total. 
Likewise  in  the  list  of  marine,  casualty,  surety  and  other  forms  of 
insurance,  similar  ratios  will  be  found  as  regards  the  intrastate  and 
interstate  business.  To  this  may  be  added  the  important  fact  that 
the  large  American  life  insurance  companies  transact  a  considerable 
portion  of  their  business  abroad,  and  that,  on  the  other  hand,  a  very 
large  proportion  of  the  fire  and  marine  insurance  of  the  country  is 

[691] 


So  The  Annals  of  the  American  Academy 

written  by  foreign  companies.  At  the  close  of  1903  two  companies 
alone  (the  Equitable  and  Mutual  Life  of  New  York)  held  366,725 
policies  abroad,  aggregating  $980,055,792  of  insurance  and  represent- 
ing for  that  year  a  premium  income  of  $42,027,980."  During  the 
same  year  foreign  fire  insurance  companies  reporting  to  the  State 
of  New  York  received  $55,935,772  in  premiums  from  their  American 
business,  or  about  28  per  cent,  of  the  total  premiums  collected  by  all 
stock  companies  in  the  United  States,  and  carried  $7,306,000,000  of 
risks,  or  27  per  cent,  of  the  total.  Likewise  in  marine  insurance  the 
American  branches  of  the  twenty  leading  foreign  companies  wrote 
$3,723,000,000  of  risks  in  1903,  or  54  per  cent,  of  the  total,  and 
received  nearly  one-half  of  the  total  premiums  collected.  Indeed, 
in  some  sections  like  the  Gulf  States  and  the  Pacific  coast,  approxi- 
mately four-fifths  of  the  total  marine  insurance  written  is  controlled 
by  foreign  capital. 

The  following  tables  will  show  in  greater  detail  the  interstate 
and  international  character  of  the  insurance  business. 

Arguments  Advanced  Against  National  Supervision. 

Without  attempting  to  disprove,  but  generally  admitting  the 
criticisms  directed  against  the  present  system  of  state  supervision, 
the  opponents  of  federal  control  question  the  wisdom  of  enacting 
legislation  to  this  effect,  on  one  or  more  of  the  following  grounds : 

1.  That  national  supervision  would  be  an  undue  infringement 
upon  state  rights. 

2.  That  the  National  Convention  of  Insurance  Commissioners  is 
composed  of  members  who  are  educated  to  the  work,  and  that  it 
would  be  better  policy  to  let  these  commissioners  in  general  assem- 
bly continue  to  provide  rules  for  the  regulation  and  supervision  of 
insurance,  as  they  have  been  doing  for  over  a  quarter  of  a  century. 

3.  That  national  supervision  will  increase  the  chances  for  fraud 
by  placing  too  much  power  in  the  hands  of  a  few  individuals.  The 
constantly  changing  character  of  the  heads  of  the  many  state  insur- 
ance departments  is  one  of  the  most  desirable  features  of  the  pres- 
ent system,  since  it  renders  collusion  easy  of  detection. 

4.  That  the  supervision  of  all  insurance  companies  in  the  United 
States,  involving  such  enormous  financial  interests  and  embracing 

'James  M.  Beck,  North  American  Review.  August,  1905,  page  194. 

[692] 


Federal  Stipervision  and  Regulatio}i  of  Insurance 


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[693] 


The  Annals  of  tJie  American  Academy 


Table  II. — Fire  Insurance.* 


New  York  Joint  Stock  Companies. 

Agricultural  Insurance  Co 

Continental  Insurance  Co 

Dutchess  Insurance  Co 

German  Alliance  Insurance  Co 

German- American  Insurance  Co 

Germania  Fire  Insurance  Co 

Glens  Falls  Fire  Insurance  Co 

Globe  and  Rutgers  Fire  Insurance  Co. 

Greenwich  Fire  Insurance  Co 

Hanover  Fire  Insurance  Co 

Home  Insurance  Co 

Niagara  Fire  Insurance  Co 

Phoenix  Insurance  Co 

Queen  Insurance  Co.  of  America  .  .  .  . 
Rochester-German  Insurance  Co.    .  .  . 

Westchester  Fire  Insurance  Co 

Williamsburg  City  Fire  Insurance  Co 

Totals 


fl.T.  S:  u}  c 
*f  v.  S  oj  C 

H  ^  cB.S 


Pennsylvania  Joint  Stock  Companies. 

American  Fire  Insurance  Co 

Fire  Association  of  Philadelphia  .  .  , 
Insurance  Co.  of  North  America  .  .  , 
National  Union  Fire  Insurance  Co.  , 

Penn  Fire  Insurance  Co , 

Spring  Garden  Insurance  Co 

Totals 


163 
661 
S3 
SO 
7S7 
280 

135 
131 
269 

435 
,169 

277 

571 
308 
no 
241 
126 


5. 740 


161 

403 
550 

105 
301 

114 


1,636 


Stock  Companies  of  Other  States. 

^tna-Hartford,  Conn 

American  Central  Ins.  Co.  (Mo.)  .  .  . 
American  Insurance  Co.  (N.  J.)  ... 
Citizens'  Insurance  Co.  of  Missouri  . 

Connecticut  Fire  Insurance  Co 

Firemen's  Fund  (California)     

German  Insurance  Co.  (111.) 

Hartford  Fire  Insurance  Co.  (Conn.) 
Milwaukee  Mechanics  Insurance  Co. 
National  Fire  Ins.  Co.  of  Hartford.  .  . 
New  Hampshire  Fire  Insurance  Co.   . 
Northwestern  Nat'l  Insurance  Co.  of 

Milwaukee 

Orient  Insurance  Co.  (Conn.) 

Phoenix  Insurance  Co.  (Conn.)    

Providence-Washington  Ins.  Co 

St.  Paul  Fire  and  Marine 

Springfield  Fire  and  Marine  Ins.  Co. 

(Mass.)    

Traders'  Insurance  Co.  (111.)  


Totals S,22o 


521 
200 
207 

143 
261 

304 
261 
907 

137 
486 

155 

iSS 

117 

484 
202 

163 

361 
iSi 


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346 

.  229 
,  362 

334 
.240 

•251 
.214 
.179 
•  44 

•331 
.266 

.223 

.203 

•139 
.103 
.278 
•377 


252 


151 
,094 

.096 

•132 
.108 
.086 


105 


,030 
,076 

■093 

055 

,020 

.088 

•159 
.  012 

•095 
.  020 
.  104 

.089 
.042 
.020 

•033 
•123 

•  052 
■133 


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1,788 

6,818 

694 

S4I 

7.649 
2,717 
1,679 
2,015 
2,457 
4,253 
11,911 

3.353 
6,440 

3.983 
1.477 
2,667 

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158 

.30a 

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IS 

.165 
.  140 
,164 
.  327 

•331 
.167 
.161 

.108 

•075 
.070 

.  192 
234 


61,803 


20 


7 

3 

3 
2 

3 

4 
3 

13 

I 

5 
I 

I 
I 

4 

3 
3 

4 

3 


65 


167 


135 

.085 
.010 
.138 

.  096 
.087 


10 


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OSS 
.049 
,  016 
.119 

•143 
.010 
.  093 

•015 
.011 

.088 
.024 

.030 
.038 
.097 

.044 

.130 


.049 


♦  To  economize  space,  the  figures  beyond  millions  are  omitted  in  the  columns.      They 
have,  however  been  included  in  the  "  totals." 


Federal  Supervision  and  Regulation  of  Insurance  83 

over  a  dozen  kinds  of  insurance  differing  radically  from  one  another 
in  many  respects,  is  well-nigh  beyond  the  power  of  a  single  depart- 
ment. 

5.  That  Congress  is  without  constitutional  power  to  establish  a 
system  of  federal  control. 

To  understand  the  real  force  of  these  contentions  a  few  words 
of  explanation  are  necessary.  In  the  first  place  federal  supervision 
does  not  contemplate  the  elimination  of  state  supervision.  It  seeks 
only  to  regulate  insurance  transactions  between  the  states,  and  pro- 
poses not  to  interfere  with  a  state's  constitutional  right  to  supervise 
its  own  home  companies.  In  other  words,  there  is  to  be  federal  con- 
trol over  interstate  insurance  supplemented  by  state  control  over 
domestic  companies.  Secondly,  it  should  be  noted  that  the  National 
Convention  of  Insurance  Commissioners  is  only  a  voluntary  body 
without  legal  existence.  Despite  its  long  career  and  the  great 
amount  of  good  which  it  has  accomplished,  the  evils  of  state 
supervision  are  still  so  numerous  and  apparent  as  to  preclude 
any  hope  for  permanent  and  far-reaching  reform  so  long  as  this 
reform  must  emanate  from  half  a  hundred  independent  sovereignties. 

The  next  two  objections  to  national  supervision,  namely,  the 
increased  opportunity  for  fraud  and  the  difficulty  of  supervising 
such  vast  interests  through  a  single  department — if  valid  at  all — 
should  only  serve  to  caution  Congress  to  exercise  the  greatest  care 
in  providing  for  the  proper  organization  and  administration  of  a 
national  system.  Probably  no  factor  is  more  largely  responsible 
for  present  evils  than  the  political  character  of  the  state  insurance 
departments.  In  nearly  every  state  of  the  Union  this  department, 
which  above  all  others,  owing  to  the  character  of  the  institution 
which  it  represents,  should  be  kept  out  of  politics,  is  regarded  as  a 
part  of  the  state's  political  machinery  to  be  filled  every  few  years  by 
men  who  have  rendered  political  services,  irrespective  of  what  their 
qualifications  for  the  office  may  be.  If  federal  supervision  is  con- 
stitutionally possible,  a  splendid  opportunity  presents  itself  to  lift 
this  most  beneficient  of  institutions  out  of  the  realm  of  politics  and 
bring  it  under  the  salutary  influence  of  trained  officials  who  might 
continue  to  serve  through  administration  after  administration. 

The  last  objection  is  by  far  the  most  important,  and  for  years 
has  proved  the  stumbling  block  in  the  way  of  federal  regulation. 
To  bring  insurance  within  the  reach  of  the   federal   government, 

[695] 


84  The  A II 11  ills  of  the  American  Academy 

like  the  railway  industry,  it  is  necessary  to  show  that  insurance  com- 
panies, like  railroad  companies,  are  transacting  an  interstate  com- 
merce business.     And   here   we   are  told   that   the   United   States 
Supreme  Court  has  repeatedly  declared  insurance  not  to  be  com- 
merce.    In  fact,   this  objection  was   the   only  one  offered  against 
national  supervision  in  the  minority  report  submitted  by  Mr.  W.  R. 
Vance  to  the  Committee  on  Insurance  Law  before  the  American  Bar 
Association.'^    This  minority  report  presents  the  whole  contention  in 
a  nut-shell.    "I  feel  myself  compelled,"  writes  Mr.  Vance  in  this  re- 
port, "to  dissent  from  the  conclusions  reached  by  my  associates  of 
the  committee  on  the  single  proposition  that  'there  is  no  constitutional 
obstacle  in  the  way  of  federal  regulation'  of  the  business  of  insur- 
ance.    If  insurance  is  not  interstate  commerce,  it  is  clear  that  the 
regulation  and  control  of  the  business  is  beyond  the  power  of  the 
federal  government.     I  am  of  opinion  that  the  existing  methods  of 
regulating  insurance  business  bv  the  several  states  is  most  defective, 
since  it  is  both  inefficient  in  preventing  wild-cat  companies  from  en- 
gaging in  the  business  and  also  nedlessly  expensive  to  those  who  in 
the  last  analysis  bear  the   expenses  incident  to  the  business, — the 
policy-holders.     I  am  also  of  opinion  that  federal  supervision,  if  it 
were  possible  under  our  constitution,  would  probably  remedy  many  of 
the  evils  existing  under  the  present  system  of  regulation,  but  I  do  not 
see  that  such  supervision  by  the  federal  government  is  possible  with- 
out  a   constitutional   amendment   expressly   giving   it  the   required 
power.     .     .     .     The  proper  conclusion  seems  to  be  that,  however 
much  we  may  desire  to  believe  that  insurance  is  interstate  commerce 
and  therefore  susceptible  of  federal  supervision,  the  matter  is  con- 
cluded by  the  carefully  considered  judgment  of  the  Supreme  Court 
of  the  United  States  against  which,  despite  frequent  assaults  by  its 
ablest  opponents  during  a  period  of  nearly  forty  years,  not  a  single 
dissenting  voice  has  been  raised  from  the  bench.     Any  act  of  Con- 
gress, with  a  view  to  such  supervision,  would  necessarily  be  unconsti- 
tutional and  void,  and  the  time  and  money  that  would  be  required  to 
secure  its  passage  could  much  more  profitably  be  expended  in  en- 
deavoring to  secure  some  uniform  action  on  the  part  of  the  states 
based  upon  a  more  intelligent  understanding  of  the  business  and  of 
the  real  interests  of  the  insuring  public." 

'' Mteting'at  Narraga'nsett  Pier,  R.  I.,  August  24,  1905. 

[696] 


Federal  Supervision  and  Regulation  of  Insurance  85 

The  Constitutionality  of  National  Supervision. 

The  constitutional  objection  in  the  way  of  federal  regulation 
consists  of  the  right  of  the  several  states  to  exercise  all  those  super- 
visory powers  not  delegated  to  the  United  States  by  the  Federal  Con- 
stitution. Under  the  Ninth  and  Tenth  amendments,  it  is  provided 
respectively  that:  "The  enumeration  in  the  Constitution,  of  certain 
rights,  shall  not  be  construed  to  deny  or  disparage  others  retained 
by  the  people" ;  and  "The  powers  not  delegated  to  the  United  States 
by  the  Constitution,  nor  prohibited  by  it  to  the  states,  are  reserved  to 
the  states  respectively,  or  to  the  people."  In  view  of  these  reserva- 
tions, federal  supervision  of  insurance  is  clearly  impossible  unless  it 
is  one  of  the  powers  delegated  to  the  United  States  by  the  Constitu- 
tion, and  the  clause  which  has  been  generally  agreed  upon  as  dele- 
gating such  power — if  it  is  delegated  at  all  by  the  Constitution — is 
Section  8  of  Article  I,  namely:  "The  Congress  shall  have  the  power 
to  regulate  commerce  with  foreign  nations,  and  among  the  several 
states,  and  with  the  Indian  tribes."  To  utilize  this  "commerce  clause" 
for  the  desired  purpose,  it  is  necessary  to  show  that  insurance  is  inter- 
state commerce.  Unfortunately,  however,  for  the  advocates  of 
national  supervision  the  United  States  Supreme  Court  has  handed 
down  a  long  series  of  decisions  denying  that  insurance  is  commerce.^ 
In  the  famous  case  of  Paul  vs.  Virginia,  decided  in  1868,  the  court 
held  that  fire  insurance  was  not  commerce ;  then  in  the  case  of 
Hooper  vs.  California,  decided  in  1894,  marine  insurance  was  de- 
clared not  to  be  commerce ;  finally  in  the  case  of  the  New  York  Life 
Insurance  Company  vs.  Cravens,  decided  in  1899,  life  insurance  was 
also  held  not  to  be  commerce. 

In  the  case  of  Paul  vs.  Virginia,  where  fire  insurance  was  the 
subject  involved,  Justice  Field  delivered  the  opinion  to  the  effect 
that,  "Issuing  a  policy  of  insurance  is  not  a  transaction  of  commerce. 
The  policies  are  simple  contracts  of  indemnity  against  loss  by  fire, 
entered  into  between  the  corporations  and  the  insured,  for  a  con- 
sideration, paid  by  the  latter.  These  contracts  are  not  articles  of 
commerce  in  any  proper  meaning  of  the  word.  They  are  not  sub- 
jects of  trade  and  barter  offered  in  the  market  as  something  having 

*  Among  the  principal  cases  are  Paul  fi.  Virginia,  8  Wall.  i68  (1868);  Liverpool  Insu- 
rance Co.  vs.  Mass.,  10  Wall.  566  (1870);  Hooper  vs.  California,  155  U.  S.  648  (1894);  New 
York  Life  Insurance  Co.  vs.  Cravens,  178  U.  S.  389  (1899);  Nutting  vs.  Mass.  183  U.  S.  553 
(1901). 

[697] 


86  The  Annals  of  the  American  Academy 

an  existence  and  value  independent  of  the  parties  to  them.  They 
are  not  commodities  to  be  shipped  or  forwarded  from  one  state  to 
another,  and  then  put  up  for  sale.  They  are  like  other  personal 
contracts  between  parties  which  are  completed  by  their  signature 
and  the  transfer  of  the  consideration.  Such  contracts  are  not  inter- 
state transactions,  though  the  parties  may  be  domiciled  in  different 
states.  The  policies  do  not"  take  effect — are  not  executed  contracts — 
until  delivered  by  the  agent  in  Virginia.  They  are,  then,  local 
transactions  and  are  governed  by  the  local  law.  They  do  not  con- 
stitute a  part  of  the  commerce  between  the  states  any  more  than  a 
contract  for  the  purchase  and  sale  of  goods  in  A^irginia  by  a  citizen 
of  New  York,  whilst  in  Mrginia  would  constitute  a  portion  of  such 
commerce."  In  the  case  of  Hooper  vs.  California,  in  1894,  the  court 
reiterated  its  opinion  in  the  following  words :  "The  business  of 
insurance  is  not  commerce.  The  contract  of  insurance  is  not  an 
instrumentality  of  commerce.  The  making  of  such  a  contract  is  a 
mere  incident  of  commercial  intercourse,  and  in  this  respect  there  is 
no  difference  whatever  between  insurance  against  fire  and  insur- 
ance against  the  perils  of  the  sea."  Even  as  late  as  1901,  in  the  case 
of  Nutting  vs.  Massachusetts,  the  Supreme  Court  again  confirmed 
its  former  decisions,  with  the  words:  "A  state  has  the  undoubted 
power  to  prohibit  foreign  insurance  companies  from  making  con- 
tracts of  insurance,  marine  or  other,  within  its  limits,  except  upon 
such  conditions  as  the  state  may  prescribe,  not  interfering  with 
interstate  commerce.  A  contract  of  marine  insurance  is  not  an 
instrumentality  of  commerce,  but  a  mere  incident  of  commercial 
intercourse." 

Contending  Viezvs  as  to  the  Applicability  of  the  "Insurance  Cases" 

to  the  Question  at  Issue. 

Notwithstanding  the  numerous  decisions  in  which  the  Supreme 
Court  has  denied  to  insurance  the  character  of  commerce,  and  which 
many  regard  as  a  final  expression  of  the  Court's  opinion,  there  are 
those  who  maintain  that  these  cases  must  not  be  considered  as  con- 
clusive against  national  supervision.  In  the  first  place,  they  contend 
that  none  of  the  insurance  cases  involved  the  constitutionality  of  a 
federal  law.  In  nearly  all  the  cases  the  principal  question  at  issue 
was  the  validity  of  state  statutes  prescribing  certain  terms,  compli- 

[698] 


Federal  Supervision  and  Regulation  of  Insurance  87 

ance  with  which  was  necessary  on  the  part  of  foreign  corporations 
before  being  permitted  to  transact  business  in  those  states ;  and  the 
statutes  were  upheld  as  a  legitimate  exercise  of  the  police  powers. 
The  decision  in  Paul  vs.  Virginia  that  insurance  is  not  commerce, 
they  regard  as  mere  dictum  and  as  not  having  been  essential  for  the 
judgment  rendered  in  that  case.  At  the  time  the  accepted  doctrine 
was  that  the  states,  in  the  absence  of  congressional  legislation,  had 
the  power  to  regulate  the  business  of  foreign  corporations  within 
their  borders.  Since  Congress  had  not  acted,  the  states  were  enti- 
tled to  do  so,  and  even  if  the  court  had  declared  insurance  to 
be  commerce,  the  judgment  in  Paul  vs.  Virginia  must  have  been 
the  same.  In  other  words,  this  case,  and  those  which  followed, 
were  based  upon  state  and  not  federal  statutes.  Until  Congress 
enacts  a  law  providing  for  the  regulation  of  insurance  com- 
panies, the  constitutionality  of  federal  supervision  must  necessarily 
be  viewed  as  an  unsettled  question,  and  no  more  weight  can  be  given 
to  the  opinions  expressed  in  the  insurance  cases  on  the  nature  of 
the  insurance  business  than  is  usually  attached  to  judicial  opinions 
on  matters  that  do  not  necessarily  enter  into  the  case  under  con- 
sideration. 

Furthermore,  the  advocates  of  national  supervision  point  out  that 
the  Constitution  must  be  regarded  as  a  growth,  and  as  having  under- 
gone a  constant  evolution.  Of  no  clause  in  the  Constitution  is  this  so 
true  as  the  so-called  commerce  clause.  From  time  to  time  the  powers 
delegated  to  the  federal  government  under  this  clause  have  been 
expanded  so  as  to  meet  the  new  requirements  of  industrial  and  com- 
mercial progress.  While  the  wording  of  the  clause  has  not  been 
changed,  its  operation  has  been  extended  to  a  vastly  larger  field  than 
formerly,  until  to-day  national  control  over  interstate  commerce 
means  an  entirely  different  thing  than  it  meant  to  our  forefathers, 
and,  in  view  of  its  gradual  extension  to.  new  modes  of  commerce, 
will  mean  something  entirely  different  in  the  future  than  it  does 
to-day. 

There  are  reasons,  the  advocates  of  national  supervision  assert, 
which  may  lead  us  to  believe  that  the  Supreme  Court  has  already  in 
large  measure  retracted  from  the  position  taken  in  the  case  of  Paul 
vs.  Virginia.     It  is  pointed  out''  that  as  early  as  1877,  in  the  case 

•  Report  of  the  Committee  on  Insurance  Law  before  the   American    Bar    Association 
August  24,  190S.    Page  8. 

[699] 


88  Tlie  Annals  of  the  Amertcan  Academy 

of  the  Pensacola  Telegraph  Company  vs.  Western  Union  Tele- 
graph Company  (96  U.  S.  i),  the  Supreme  Court  decided  that  a 
New  York  corporation  had  the  right  to  construct  and  operate  a  line 
in  certain  parts  of  Florida,  despite  the  fact  that  the  Pensacola  Tele- 
graph Company  had  received  from  the  legislature  of  Florida  the  sole 
right  to  erect  and  operate  a  line  within  said  parts  of  Florida's  terri- 
tory. The  court  said:  "We  are  aware  that  in  Paul  vs.  Virginia  this 
court  decided  that  a  state  might  exclude  a  corporation  of  another 
state  from  its  jurisdiction,  and  that  corporations  are  not  within  the 
clause  of  .the  Constitution  which  declares  that  'the  citizens  of  each 
state  shall  be  entitled  to  all  privileges  and  immunities  of  citizens  in 
the  several  states.'  .  .  .  Upon  principles  of  comity,  corporations 
of  one  state  are  permitted  to  do  business  in  another  unless  it  con- 
flicts with  the  law  or  unjustly  interferes  with  the  rights  of  the  citizens 
of  the  state  into  which  they  come.  Under  such  circumstances,  no 
citizen  of  a  state  can  enjoin  a  foreign  corporation  from  pursuing  its 
business."^*' 

More  recently  we  have  the  decision,  in  February,  1903,  in  the 
so-called  "lottery  cases,"  which  involved  the  constitutionality  of  a 
federal  statute  forbidding  interstate  carriers  to  transfer  lottery 
tickets  between  states.  It  was  argued  that  since  an  insurance  policy 
had  been  declared  not  an  article  of  commerce,  a  lottery  ticket  would 
likewise  not  come  within  this  category.  The  Supreme  Court,  how- 
ever, by  a  vote  of  five  to  four,  upheld  the  statute  and  declared  a  lot- 
tery ticket  to  be  an  article  of  commerce.  The  force  of  this  decision 
as  weakening  the  authority  of  Paul  vs.  Virginia  has  been  clearly  ex- 
pressed by  Mr.  James  M.  Beck  in  the  following  statement:  "Appar- 
ently, there  was  no  logical  distinction  between  the  two ;  for,  if  the 
lottery  ticket,  forbidden  by  the  police  laws  of  nearly  evry  state,  which 
only  promises  to  pay  upon  the  remote  contingency  of  a  successful 
drawing,  can  be  an  article  of  commerce,  then  a  contract  of  insurance, 
which  promises  to  pay  upon  a  contingency  which  must  surely  happen, 
must  a  fortiori  be  a  subject  of  commerce.  .  .  .  It  is  significant, 
although  the  opinion  of  the  minority  justices  referred  at  length  to 
Paul  vs.  Virginia,  and  subsequent  cases  as  inconsistent  with  the  de- 

'"  This  decision  was  dissented  from  by  Mr.  Justice  Field,  who  upheld  the  decision  of  Paul 
vs.  Virgi'.ia,  and  urged  the  necessity  of  leaving  with  the  states  the  power  to  control  corp' ra- 
tions transacting  business,  within  their  borders.  He  argued  that  "  By  the  decision  now  ren- 
dered, congressional  legislation  can  take  this  control  from  the  state,  and  even  thrust  within 
its  borders  corporations  from  other  states  in  no  way  responsible  to  it." 

[700] 


Federal  Supervision  and  Regulation  of  Insurance  89 

cision  of  the  court,  the  opinion  of  the  majority  made  no  attempt  to 
suggest  a  logical  distinction  between  a  policy  of  .insurance  and  a  lot- 
tery ticket;  and  it  may  be  fairly  contended,  therefore,  until  the 
Supreme  Court  declares  otherwise,  that  the  lottery  cases  have  over- 
ruled Paul  z's.  Virginia,  at  least  to  the  extent  that  the  former  case 
held  that  a  policy  of  insurance  could  not  be  a  subject  of  commerce. "^^ 

The  supporters  of  national  supervision,  however,  do  not  confine 
themselves  to  showing  that  the  authority  of  Paul  vs.  Virginia  has 
been  impaired  by  subsequent  decisions,  but  also  contend  that  in 
neither  this  nor  in  any  of  the  other  cases  is  there  any  record 
to  show  that  there  was  any  thorough  consideration  of  the  facts 
regarding  the  character  and  uses  of  insurance  or  the  operation 
of  the  business.  Such  a  consideration,  they  say,  will  show  that 
instead  of  being  a  mere  incident  of  commerce  as  the  court  has 
decided,  insurance  is  vmquestionably  commerce  itself  or  an  insep- 
arable element  of  commerce,  as  that  term  is  commonly  used ;  more- 
over, that  the  court  in  deciding  Paul  z's.  Virginia  and  subsequent 
cases,  labored  under  a  misconception  of  the  facts  governing  the 
operation  of  the  insurance  business. 

A  closer  examination  will  show  that  this  contention  is  well  sub- 
stantiated by  facts.  It  requires  little  argument  to  prove  that 
insurance  fundamentally  underlies  all  business,  and  that  it  is  insep- 
arably interwoven  with  our  whole  commercial  life.  Marine  insur- 
ance, for  example,  is  considered  an  indispensable  necessity  by  all 
oversea  merchants,  and  in  one  form  or  another  has  become  an  integ- 
ral part  of  nearly  every  maritime  transaction.  It  ranks  in  importance 
with  any  other  active  force  in  influencing  and  controlling  the  employ- 
ment of  shipping.  It  serves  a  most  useful  purpose  in  promoting 
commercial  transactions  by  vastly  extending  the  use  of  credit.  It  is 
just  as  much  an  instrumentality  of  commerce  and  almost  as  essential 
to  international  and  coastwise  trade  as  the  vessel  itself. 

Similarly  in  the  case  of  fire  insurance,  the  usefulness  of  the  busi- 
ness to  trade  and  industry  can  scarcely  be  comprehended.  Without 
it  the  business  man  could  obtain  no  credit,  and  would  be  compelled 
to  limit  his  commercial  transactions  to  the  extent  of  his  capital.  With 
fire  insurance  as  collateral,  however,  he  may  secure  credit  from  the 
wholesale  merchant  or  the  banker  to  four  or  five  times  the  extent  of 
his  capital,  and  do  so  at  cash  prices.    An  American  cargo,  for  exam- 

"  North  American  Review.  August,  1905,  page  199. 

[701] 


Qo  The  Annals  of  the  American  Academy 

pie,  shipped  to  Europe  may  be  balanced  by  a  European  cargo  shipped 
to  the  Orient,  which  in  turn  is  balanced  by  an  Oriental  cargo  shipped 
to  America — a  series  of  transactions  based  solely  on  credit,  and  made 
possible  only  because  this  credit  is  guaranteed  by  fire  and  marine 
insurance.  Illustrations  of  this  nature  might  be  indefinitely  multi- 
plied to  show  how  intimately  commerce  and  the  various  forms  of 
property  insurance  are  related.  Suffice  it  to  say  that  the  two  can- 
not be  separated.  As  collateral  security,  the  value  of  insurance  to 
commerce  is  beyond  all  calculation,  as  may  be  judged  from  the  fact 
that  97  per  cent,  of  the  world's  commerce  is  estimated  to  be  trans- 
acted on  credit,  and  only  3  per  cent,  on  a  cash  basis.  As  Mr.  A.  C. 
Campbell  has  so  admirably  stated  •}-  "No  statistics  would  be  possible 
to  show  the  extent  of  the  fire  insurance  business  as  now  practised, 
for  those  figures  would  need  to  be  as  large  as  those  of  all  trade. 
There  is  practically  no  combustible  property  that  is  not  insured 
against  fire ;  every  car  of  grain,  every  scow-load  of  lumber,  every 
bale  of  cotton,  every  package  of  manufactured  goods,  from  the 
time  it  assumes  merchantable  shape  until  it  is  entirely  consumed, 
is  thus  conditionally  the  property  of  insurers.  Without  such  a  sys- 
tem, modern  commerce  would  be  impossible.  The  fire  insurance 
policy,  or  the  assignment  of  certain  interest  in  it,  is  attached  to  the 
mortgage  given  by  the  farmer  for  money  to  build  his  new  barn ;  the 
fire  insurance  policy  is  as  necessary  to  the  banker  as  is  the  warehouse 
or  shipping  receipt  on  the  strength  of  which  he  advances  funds  for 
thac  magic  of  commerce,  'moving  the  crop' ;  fire  insurance  is  as 
important  to  the  manufacturer  as  is  the  foundation  under  his  fac- 
tory ;  fire  insurance  is,  in  fact,  the  very  backbone  of  that  part  of  our 
social  life  which  has  to  do  with  making,  moving  and  keeping 
material  things." 

Quite  as  important  as  fire  and  marine  insurance  is  the  third  great 
branch  of  indemnity,  namely,  life  insurance.  Reaching  out  among 
the  millions  of  citizens  it  accumulates  their  small  savings  into  gigan- 
tic funds  aggregating  hundreds  of  millions  of  dollars  to  be  loaned  in 
turn  or"  used  as  productive  capital.  In  many  respects  life  insurance 
ranks  with  the  banking  business  as  a  financial  institution.  Being 
large  dealers  in  mortgages  and  securities,  life  insurance  companies 
exert  a  powerful  influence  upon  the  money  market ;  and  while 
not  issuing  notes  for  circulation  like  banks,  they  issue  bonds  and 

■^  A.  C.  Campbell  in  "Insurance  and  Crime,"  page  131. 

[702] 


Federal  Supervision  and  Regulation  of  Insurance  91 

policies  which  partake  of  the  same  nature.  Besides  serving  as  a 
means  of  protection  to  the  family  or  to  business  enterprises,  life 
insurance  policies  may  be  used  as  collateral,  because  through  their 
possession  the  holder  can  secure  credit  from  his  banker,  his  mer- 
chant or  the  insurance  company. 

In  general,  then,  insurance  in  its  various  forms  turns  out  to  be 
the  foundation  of  credit,  and  the  protector  of  all  commerce,  rather 
than  the  mere  incident  of  commerce  that  the  Supreme  Court  has 
declared  it  to  be.  But  in  view  of  some  of  the  other  transactions 
which  have  been  declared  subjects  of  commerce  by  the  Supreme 
Court,  it  would  seem  that  insurance  policies  must  likewise  belong  to 
this  category.  If  telegraph  messages,  which  are  neither  "subjects 
of  trade  offered  in  the  market  as  something  having  an  existence  or 
value  independent  of  the  parties  to  them"  or  "commodities  to  be 
shipped  or  forwarded  from  one  state  to  another  and  then  put  up  for 
sale,"  are  articles  of  commerce,  it  is  difficult  to  see  why  insurance 
policies  should  not  belong  to  the  same  class.  If  a  lottery  ticket, 
depending  on  a  doubtful  contingency  and  failing  to  meet  with 
Justice  Field's  definition  of  an  article  of  commerce,  as  laid  down 
in  Paul  vs.  Virginia,  is  commerce,  then  it  seems  that  a  life  insur- 
ance contract  w^hose  fulfillment  depends  upon  a  contingency  which 
is  certain  to  happen,  must  also  be  a  subject  of  commerce.  But 
even  leaving  such  analogies  out  of  account,  Justice  Field's  opinion 
that  contracts  of  insurance  "do  not  take  effect — are  not  exe- 
cuted contracts — until  delivered  by  the  agent"  and  are  there- 
fore local  transactions,  does  not  accord  Avith  actual  facts,  and  un- 
duly emphasizes  the  importance  of  the  delivery  of  the  contract 
in  an  insurance  transaction.  As  a  matter  of  fact,  in  thousands 
of  cases,  insurance  policies  take  effect  the  day  the  application  is 
made  or  when  the  policy  is  signed  by  the  policy  writer  at  the  home 
office,  that  is  to  say,  before  the  policy  is  delivered.  But  it  is  not  so 
much  the  delivery  of  the  paper  which  represents  the  contract  as  the 
purpose  contemplated  in  the  contract  which  should  claim  our  special 
attention.  Insurance  must  be  regarded  not  as  the  mere  delivery  of 
a  policy,  but  as  the  exchange  of  an  economic  good,  intangible,  it  is 
true,  yet  real,  for  a  definite  consideration ;  and  here  perhaps  lies  the 
difficulty  in  seeing  that  insurance  at  bottom  is  an  economic  good, 
resembling  tangible  commodities  which  are  bought  and  sold.  Insur- 
ance companies  send  their  agents  from  state  to  state  and  from  coun- 


[703] 


92  The  Annals  of  the  American  Academy 

try  to  country  to  sell  to  the  public  for  a  stipulated  price  a  certain 
utility,  a  right  to  be  indemnified  upon  the  happening  of  a  contin- 
gency, or  in  other  words,  an  economic  good.  If  insurance  were  not 
a  utility  of  actual  value,  there  would  not  be  so  many  millions  paying 
their  hard  cash  in  order  to  obtain  it.  As  has  been  aptly  said  :^^  "A 
contract  to  exchange  a  ton  of  coal  for  money  may  not  be  commerce, 
but  the  actual  exchange  is ;  and,  by  parity  of  reasoning,  a  contract 
to  pay  a  sum  of  money  for  indemnity,  in  consideration  of  an  ulti- 
mate return,  whether  certain  or  contingent,  of  another  sum  of 
money,  may  not  be  commerce,  but  the  actual  exchange  of  reciprocal 
pecuniary  benefits  would  seem  to  be  as  much  commerce  as  the  ex- 
change of  any  other  commodity." 

From  whatever  point  of  view  we  may  consider  the  nature  of 
insurance,  it  appears,  therefore,  to  be  not  only  an  integral  and  indis- 
pensable element  of  commerce  but  a  subject  of  commerce  itself, 
as  ^^■e  use  that  term  in  everyday  language.  It  is  just  as  much  a  part 
of  modern  commerce  as  the  telegraph,  the  telephone  or  transporta- 
tion itself.  Indeed,  it  is  regarded  as  a  part  of  commerce  by  nearly 
all  the  great  nations,  for  in  England  the  supervision  of  insurance  is 
entrusted  to  the  Board  of  Trade ;  in  Austria  to  the  Tribunal  of  Com- 
merce ;  and  in  France  to  the  Minister  of  Commerce.  Even  the  Con- 
gress of  the  United  States  has  declared  insurance  corporations  as 
coming  under  the  term  "commerce"  by  legislating  that  the  Depart- 
ment of  Commerce  and  Labor  should  gather  and  distribute  informa- 
tion regarding  corporations  engaged  in  interstate  commerce,  includ- 
ing corporations  engaged  in  insurance. 

Conclusion. 

From  the  foregoing  review  it  must  appear  that  the  mass  of 
evidence  warrants  a  change  from  a  decentralized  to  a  centralized 
system  of  supervision.  Indeed,  the  only  important  obstacle  in  the 
way  of  such  a  change  is  legal  and  not  economic.  By  its  very 
nature  insurance  is  a  national  interest,  and  nearly  all  students 
of  the  subject  are  agreed  as  to  the  advantages  of  having  the  busi- 
ness controlled  by  one  central  supervising  authority.  There  can  be 
little  doubt  that  a  national  insurance  department,  if  properly  con- 
stituted  and   wisely   administered,   can   greatly   reduce   the   present 

"James  M.  Beck  in  the  North  American  Review,  August,  190s,  page  201. 

[704]. 


Federal  Supervision  and  Regtdatioi  of  Insurance  93 

expense  of  supervision,  and  can  do  much  towards  equalizing  and 
lessening  the  present  burden  of  taxation.  There  can  be  little  doubt, 
too,  that  it  is  the  only  practicable  means  of  creating  uniformity  in 
our  insurance  law  and  in  the  methods  of  supervising  the  companies. 
It  can  be  made  to  afford  better  protection  to  policyholders  than  the 
present  system,  at  the  same  time  protecting  the  companies  from 
arbitrary,  restrictive  and  retaliatory  legislation  on  the  part  of  the 
several  states.  Moreover,  as  is  generally  admitted,  it  could  greatly 
extend  the  principle  of  publicity,  and  could  certainly  be  made  to 
render  more  effective  than  the  present  system  the  supervision  of  that 
large  part  of  the  insurance  business  which  is  international. 

With  the  single  exception  of  the  United  States  every  nation  of 
any  importance  has  recognized  the  necessity  of  centralizing  control 
over  insurance.  The  German  Imperial  Statute  of  May  12,  1901,  placed 
the  supervision  of  private  insurance  companies,  heretofore  regu- 
lated by  the  several  states,  in  charge  of  an  imperial  supervising  office. 
The  constitution  of  1898  of  the  Commonwealth  of  Australia  likewise 
vests  the  control  over  interstate  insurance  in  the  central  government ; 
while  in  France,  after  a  thorough  consideration  of  the  subject  in 
1903,  the  insurance  business  was  placed  under  the  control  of  the 
Ministry  of  Commerce.  Only  in  the  United  States  is  there  a  decen- 
tralized system  of  fifty-two  separate  departments  regulating  and 
supervising  a  business  which  might  just  as  well  be  taken  care  of 
by  a  single  department.  And  the  only  important  argument 
which  has  been  advanced  against  a  change  ever  since  1868  and 
which  is  being  used  as  effectively  now  as  ever,  is  the  doubtful  con- 
stitutionality of  any  measure  which  seeks  to  nationalize  insurance 
with  reference  to  its  control.  But,  as  stated,  the  question  of  the 
constitutionality  of  such  a  measure  has  never  yet  been  squarely  pre- 
sented to  the  United  States  Supreme  Court  for  decision,  because 
Congress  has  never  yet  legislated  to  that  effect.  In  all  the  so-called 
"insurance  cases"  upon  which  the  argument  of  unconstitutionality  is 
based,  some  other  immediate  issue  was  involved.  The  constitution- 
ality of  a  law  providing  for  national  supervision  of  insurance  is, 
therefore,  an  untried  and  unsettled  question,  though  numerous  facts 
would  seem  to  justify  a  hope  that  the  Supreme  Court  would  pass 
favorably  upon  such  a  measure.  Public  policy  would  seem,  there- 
fore, to  require  that  Congress  should  at  the  earliest  possible  moment 
take  the  initiative  by  enacting  some  measure,  like  the  Dryden  Bill, 

[705] 


94  The  Annals  of  the  American  Academy 

thus  giving  occasion  for  a  test  case.  Then,  if  the  Supreme  Court 
refuses  to  reverse  its  former  decisions  and  Congress  is  left  without 
constitutional  power  to  establish  a  law  providing  for  national  super- 
vison,  the  question  arises  whether  the  evils  of  the  present  system 
and  the  advantages  of  the  proposed  system,  in  view  of  the  import- 
ance and  magnitude  of  the  interests  involved,  would  not  justify  the 
adoption  of  a  constitutional  amendment. 

But  in  case  national  supervision  of  insurance  should  ever  be- 
come a  reality,  it  cannot  be  too  strongly  emphasized  that  the  nature 
of  the  business  and  the  interests  of  both  insured  and  insurers  demand 
that  such  supervision  should  be  taken  enl^ely  out  of  politics,  and 
should  be  entrusted  to  men  who  are  chosen  for  their  special  fitness 
rather  than  party  allegiance.  Few  departments  of  government  in- 
volve greater  responsibility  and  come  into  closer  contact  with  the 
interests  of  so  many  millions  of  people  as  the  insurance  departments. 
Insurance  is  a  technical  business  which  requires  that  those  who  look 
after  its  financial  condition,  prescribe  its  investments,  recommend 
legislation  and  otherwise  regulate  the  business,  should  be  men  with 
special  training  and  with  long  experience.  Yet  under  the  present 
system  of  state  supervision  this  all-important  requirement  has  been 
largely  disregarded  and  insurance  departments  have  in  most  cases 
assum.ed  a  distinctly  political  character.  "It  will  be  seen,"  writes 
Mr.  S.  H.  Wolfe  in  a  recent  article,^*  "that  the  supervising  officer 
is  part  of  the  political  machinery  of  the  state,  and  the  besetting  sin 
of  American  civic  government — the  political  pull — is  responsible  for 
whatever  lack  of  efficiency  there  may  be  in  this  important  branch  of 
the  state  government.  It  is  an  unfortunate  fact  that  this  office, 
which  comes  into  such  close  and  vital  relationship  with  the  interests 
of  so  large  a  number  of  citizens  should  be  handed  out  as  a  reward 
for  political  services.  It  must  not  be  understood  that  this  is  a  sweep- 
ing condemnation  of  all  insurance  departments  or  a  denunciation  of 
every  insurance  commissioner,  for  some  have  appreciated  the  im- 
portance of  their  duties,  have  cast  off  all  political  yokes  and  affilia- 
tions, and  have  succeeded  in  reforming  serious  evils  which  existe.d 
in  the  business.  It  is  merely  a  criticism  of  a  system  which  takes  men 
with  no  technical  education,  places  them  in  charge  of  one  of  the 
most  important  bureaus,  and  then,  without  regard  to  their  honesty, 
efficiency  or  record,  sweeps  them  out  of  office  and  hands  their  posi- 

'*  North  American  Revie    ,  July,  1905. 

[706] 


Federal  Supervision  and  Regulation  of  Insurance  95 

tions  to  some  new,  inexperienced  man  as  a  reward  for  political  serv- 
ices rendered  at  the  last  election.  This  condition  of  affairs  is  to  be 
found  in  nearly  every  state  in  this  country.  .  .  .  To  expect  a 
man  trained  in  other  walks  of  life  to  develop  suddenly  into  a  com- 
petent supervisor,  is  to  assume  the  impossible.  Life  insurance  is  a 
huge  structure  and  its  erection  must  be  watched  by  competent  eyes." 
Simply  to  substitute  a  national  department  for  a  large  number 
of  state  departments  without  eliminating  the  present  political  char- 
acter of  the  office,  may  only  be  laying  the  basis  for  a  repetition  of 
many  evils  which  it  is  now  sought  to  overcome.  Centralrzed  super- 
vision, if  properly  organized  and  applied,  makes  possible  certain  re- 
forms which  cannot  be  realized  by  attempting  to  unify  the  action  of 
half  a  hundred  independent  and  often  hostile  legislatures  and  insur- 
ance departments.  Quite  as  important  as  centralization  in  supervision 
is  the  necessity  of  making  certain  that  the  supervising  officers  are 
strong,  efficient  and  politically  independent.  Only  by  combining 
centralization  of  supervision  with  these  other  factors  can  real  and 
lasting  reform  be  accomplished. 


THE  DISTRIBUTIOX  OF  SURPLUS  IX  LIFE  LXSURAXCE 
A  PROBLEM  IX  SUPERVISIOX 


By  L.  a.  Anderson. 

Madison,  Wisconsin. 


The  scandals  that  have  been  brought  to  Hght  recently  in  the 
insurance  field,  have  drawn  especial  attention  to  the  question  of 
government  supervision.  What  are  the  duties  of  a  state  in  matters 
of  insurance,  and  how  can  those  duties  be  most  efficiently  exercised  ? 
How  far  should  the  government,  state  or  national,  go  in  the  matter 
of  restricting  or  regulating  the  right  of  contract  on  the  part  of  the 
public,  and  how  far  should  the  government  go  in  regulating  or 
restricting  the  operations  of  the  companies?  These  are  questions 
that  both  policyholders  and  those  charged  with  the  duties  of  super- 
vision may  well  ponder  over. 

We  cannot  in  a  brief  paper  of  this  kind,  discuss  the  entire  ques- 
tion of  supervision  in  its  manifold  dvities  and  forms,  but  will  direct 
our  attention  to  the  question  of  distribution  of  surplus,  and  the  solu- 
tion that  seems  feasible  and  efficient.  In  a  discussion  of  this  ques- 
tion, we  naturally  turn  to  the  controversy  between  Zeno  ISl.  Host, 
the  Wisconsin  commissioner,  and  the  Equitable  Life  Assurance 
Society  of  Xew  York.  The  Eqxiitable  was  organized  in  1859  by 
Mr.  Henry  B.  Hyde,  then  a  young  man  twenty-five  years  of  age 
and  employed  as  a  clerk  in  the  office  of  the  Mutual  Life.  He  made 
his  plans  known  to  the  president  of  that  company  and  asked  for  his 
opinion  as  to  its  feasibility.  This  aroused  the  ire  of  the  venerable 
president,  for  it  was  rank  treason  in  his  mind  for  a  subordinate  in 
that  office  to  even  think  of  starting  a  competing  company.  Mr. 
Hyde  was  threatened  with  immediate  dismissal  if  he  persisted  in 
his  plans.  But,  without  going  further  into  details,  the  Equitable 
was  organized  and  located  in  the  same  building  one  story  above 
the  office  of  the  Alutual  Life.  The  new  company  was  to  be  "mutual 
with  capital  stock."     This  is,  strictly  speaking,  a  contradiction  of 

[708] 


The  Distribution  of  Surplus  i\i  Life  Insurance  g; 

terms,  for  there  can  be  no  stock  in  a  purely  mutual  company.  The 
plan  was  to  have  $100,000  capital  stock  on  which  the  stockholders 
were  to  receive  7  per  cent,  dividends ;  the  remainder  of  the  earnings 
was  to  be  divided  among  the  policyholders.  This  is  known  as  the 
"mixed"  company  plan.  The  stockholders  elected  the  directors  and 
had  virtually  complete  management  of  the  company's  affairs.  A 
majority  of  the  stock  of  the  Equitable  was  until  recently  held  by 
the  Henry  B.  Hyde  estate,  which  was  thus  given  absolute  power 
to  choose  the  directors  of  the  company  and  indirectly  to  manage 
the  investment  of  the  company's  funds  now  exceeding  four  hun- 
dred millions. 

The  shares  owned  by  Mr.  Hyde  were  left  by  his  will  in  the 
hands  of  trustees  until  his  son,  James  H.  Hyde,  should  become 
thirty  years  of  age.  The  trustees  were  James  W.  Alexander,  the 
president  of  the  Equitable;  James  H.  Hyde,  first  vice-president 
anS  heir,  and  William  H.  Mclntyre,  a  trusted  friend  of  the  elder 
Hyde.  These  trustees  had  the  power  to  vote  a  majority  of  the 
shares  in  the  election  of  directors,  but  Mr.  Hyde  had  a  veto  on 
the  action  of  the  other  two,  so  that,  although  he  could  not  compel 
absolutely  the  election  of  his  choice  he  could  compel  the  election  of 
directors  that  were  acceptable  to  him  and  would  do  his  bidding> 
This  is  one  of  the  bones  of  contention.  Many  leading  authorities 
hold  that  the  stock  should  be  retired  and  the  management  of  the 
company  turned  over  to  the  policyholders,  as  has  been  done  in  sev- 
eral instances,  notably  the  Phoenix  Mutual  and  the  Germania  Life. 
The  former  retired  the  stock  absolutely,  while  the  latter  retained 
the  stock,  but  gave  the  policyholders  the  right  to  vote  at  the  annual 
meetings.  This  is  one  of  the  things  contended  for  by  Mr.  Host, 
and  it  is  certainly  in  accord  with  good  business  principles.  But  it 
concerns  only  indirectly  the  question  at  hand,  for  deferred  dividend 
policies  have  been  issued  by  purely  mutual  companies  as  well  as  by 
stock  and  mixed  companies. 

In  its  competition  with  other  companies  for  business  the  Equi- 
table began  early  to  specialize  in  deferred  dividend  contracts,  about 
85  per  cent,  of  its  business  being  of  this  class,  i.  e.,  with  distribution 
periods  exceeding  five  years,  most  of  them  being  fifteen  or  twenty 
vears.  The  legality  of  this  kind  of  policy  was  never  questioned 
until  Dr.  William  A.  Fricke  became  insurance  _  commissioner  of 
Wisconsin  and  he  did  nothing  to  test  its  legality  during  his  term  of 

[709] 


pS  The  A  finals  of  the  American  Academy 

office.  Not  only  did  he,  but  every  commissioner  before  him,  and 
Commissioner  Giljohann  for  four  years  after  the  expiration  of 
Dr.  Fricke's  term  of  office,  issued  certificates  declaring  that  the 
Equitable  had  complied  with  the  Wisconsin  law  relating  to  compan- 
ies operating  on  the  legal  reserve  plan.  In  1902,  however,  Dr. 
Fricke  issued  a  book  in  which  he  severely  attacked  the  deferred 
dividend  contract  and  cited  the  Wisconsin  law  of  1871  as  forbidding 
the  deferring  of  dividends  for  more  than  five  years.  The  law  reads 
as  follows : 

"Every  life  insurance  corporation  doing  business  in  this  state,  upon  the 
principle  of  mutual  insurance,  or  the  members  of  which  are  entitled  to  a 
share  in  the  surplus  funds  thereof,  may  make  distribution  of  such  surplus 
annually  or  once  in  two.  three,  four  or  five  years,  as  the  directors  thereof 
may  determine.  In  determining  the  amount  of  the  surplus  to  be  distributed 
there  shall  be  reserved  an  amount  not  less  than  the  aggregate  net  value  of 
all  outstanding  policies,  said  value  to  be  computed  by  the  American  experience 
table  of  mortality,  with  interest  not  exceeding  4^4  per  cent."  (Section  1952, 
Statutes  of  1898.) 

Dr.  Fricke  cited  a  large  number  of  cases  in  support  of  his 
contention  that  this  law  was  mandatory,  that  the  word  "may"  should 
mean  must,  etc. 

In  December,  1902,  only  a  few  months  after  the  appearance  of 
Dr.  Fricke's  book,  a  policyholder  of  the  Equitable  filed  a  petition 
in  the  department  of  insurance,  setting  forth  that  the  company  had 
not  complied  with  this  law,  in  that  it  had  not  distributed  the  sur- 
plus within  five  year  periods.  ]\Ir.  Giljohann,  who  was  then  com- 
missioner of  insurance,  declined  to  take  action,  on  the  ground  that 
his  term  of  office  had  almost  expired,  and  that  the  matter  had  better 
be  left  entirely  to  his  successor. 

•When  INIr.  Host  became  commissioner,  in  January,  1903,  he 
granted  a  hearing  to  the  petitioner,  at  which  both  parties  were 
represented  by  able  counsel.  On  July  31st  following,  Mr.  Host 
ruled  that  the  company  had  not  complied  with  the  law  and  gave 
notice  that  he  would  revoke  its  license  unless  it  filed  with  him  a 
statement  within  thirty  days  declaring  that  it  would  comply  with 
his  construction  of  the  law.  The  company  did  not  file  such  state- 
ment, but  on  the  contrary  applied  to  the  court  for,  and  obtained,  a 
temporary  injunction  restraining  the  commissioner  from  revoking 
the  license  of  the  company.    The  case  was  then  heard  on  its  merits 

[710] 


The  Distrihiition  of  Surplus  in  Life  Insurance  99 

in  the  Circuit  Court  for  Dane  County,  and  Judge  Dunwiddie  held 
tliat  section  1952  was  mandatory  and  that  the  company  must  dis- 
tribute the  surphis  at  least  once  in  five  years,  or  in  other  words,  that 
the  deferring  of  dividends  for  a  longer  period  than  five  years  was 
illegal.  The  company  appealed  the  case  to  the  supreme  court,  where 
it  was  reversed  by  unanimous  decision,  directing  the  lower  court 
to  issue  a  permanent  injunction  to  restrain  the  commissioner  from 
revoking  the  license  of  the  company  to  do  business  in  Wisconsin. 

Attempts  were  made  by  the  attorney-general  and  the  insurance 
commissioner  to  get  a  new  trial,  but  this  was  denied  by  the  court. 
A  bill  was  then  introduced  in  the  legislature  and  passed,  amending 
the  law,  so  as  to  require  distribution  within  five  year  periods,  so 
that  there  can  now  be  no  dispute  as  to  the  meaning  of  this  section. 

The  query  is  naturally  suggested,  what  are  the  arguments  for 
and  against  the  deferred  dividend  contract?  In  favor  of  such  con- 
tracts, and  against  short  period  distribution,  it  is  argued,  first,  that 
surplus  is  necessary  as  a  safeguard  for  the  solvency  of  the  com- 
pany. The  reserve  is  of  course  the  standard  of  solvency,  and  in 
theory  the  reserve  will  make  good  every  contract  issued,  but  a  work- 
ing company  must  also  have  a  surplus,  otherwise  the  reserve  would 
become  impaired  immediately ;  hence  this  resolved  itself  into  a  ques- 
tion of  hozv  much  surplus  shall  be  kept  on  hand  to  make  an  adequate 
safeguard  in  addition  to  the  reserve.  Second,  it  is  argued  that  de- 
ferred policies  have  been  profitable  to  their  holders.  The  argument 
that  money  will  double,  treble,  quadruple,  etc.,  by  compound  interest 
has  been  used  with  all  possible  force.  In  addition  to  this  increase 
by  compound  interest,  it  is  argued,  that  the  persistent  policyholder 
will  also  receive  the  gain  from  the  forfeitures  of  lapsed  policies. 
Third,  it  is  argued,  that  the  deferring  of  dividends  will  in  a  large 
measure  prevent  lapses,  by  making  the  policyholder  feel  that  if  he 
stays  to  the  end  of  the  period  he  gains,  but  if  he  drops  out  before 
maturity  he  loses.  Fourth,  it  is  argued  that  it  is  a  matter  of  right 
of  contract,  that  any  one  has  a  right  to  take  such  a  contract  if 
he  chooses.  This  argument  is  advanced  by  many  of  the  best 
authorities  on  insurance  in  the  United  States.  In  this  connec- 
tion the  opinions  of  the  insurance  commissioners  of  the  various 
states  are  of  especial  interest. 

Mr.  Hadley,  the  deputy  commissioner  of  Michigan,  writes :  "I 
do  not  believe  in  a  law  compelling  companies  to  distribute  their 

[711] 


loo  The  Annals  of  the  American  Academy 

surplus  at  least  once  in  five  years.  I  think  that  that  is  a  matter  to 
be  regulated  by  the  terms  of  the  contract." 

Mr.  Cole,  of  Mississippi,  writes:  "The  only  thing  that  the  law 
should  undertake  to  do,  in  my  opinion,  is  to  see  that  the  companies 
fulfill  their  contracts  rather  than  undertake  to  prescribe  contracts 
for  the  companies." 

Commissioner  Drake,  of  the  District  of  Columbia,  who  was  for 
two  years  deputy  superintendent  of  insurance  of  Ohio,  and  the  tech- 
nical official  of  that  department,  writes :  "\\'hile  I  have  favored  and 
radically  advocated  for  the  past  thirty-five  years^after  policies  be- 
come non-forfeitable — the  annual  distribution  only  of  surplus,  yet  I 
do  not  approve  of  Commissioner  Host's  course  toward  the  Equitable, 
.  .  .  for  the  reason  that  it  seems  to  me  that  inaction  along  that  line 
for  so  many  years  by  his  predecessors  had  established  a  precedent 
that  time  and  usage  had  caused  to  become  law  within  itself." 

Says  ]\Ir.  ^Monroe,  of  Arkansas :  "I  think  people  taking  insur- 
ance should  be  allowed  by  law  to  make  contracts  to  suit  them.  A 
state  makes  a  mistake  when  it  undertakes  to  say  to  her  citizens  that 
they  must  not  make  any  kind  of  a  contract  unless  the  making  of  such 
contract  injures  some  other  citizen." 

Says  Commissioner  Young,  of  North  Carolina :  "It  occurs  to 
me  that  where  a  proper  and  reasonable  contract  is  made  between  an 
insurance  company  and  its  patrons  that  the  law  should  allow  the 
complete  carrying  out  of  the  contract,  and  should  not,  in  my  opinion, 
unnecessarily  interfere  with  or  'cramp'  them  in  their  dealings." 

Commissioner  Upson,  of  Connecticut,  writes:  'Tn  this  state 
the  law  does  not  require  such  a  distribution,  and  I  do  not  believe 
that  such  a  law  should  be  enacted." 

From  the  Illinois  department  Ave  have  this  reply:  "The  law  of 
this  state  provides  that  a  life  insurance  company  may  make  dis- 
tribution of  such  surplus  once  in  two,  three,  four  or  five  years,  as 
the  directors  may  from  time  to  time  determine.  The  appellate 
court  of  this  state  has  held,  97  App.  Rep.  555,  that  this  provision  is 
not  mandatory,  but  permissive." 

Commissioner  Durham,  of  Pennsylvania,  says :  "I  do  not  believe 
that  the  matter  needs  any  legal  regulation,  but  should  be  left  to  be 
regulated  by  the  terms  of  the  contract  between  the  company  and  its 
members." 

Commissioner  Gray,  of  Rhode  Island,  says:  "I  am  inclined  to 

[712] 


The  Distribution  of  Surplus  in  Life  Insurance  loi 

the  belief  that  such  a  law,  if  it  should  impair  the  obligation  of  their 
contracts  to  the  extent  of  requiring  them  to  change  any  of  the  terms 
of  that  contract  would  be  unconstitutional." 

Commissioner  Dearth,  of  Minnesota,  writes:  "I  can  see  no  good 
reason  why  an  applicant  for  a  policy  of  insurance  in  any  company 
should  not  have  the  legal  right  at  least  to  accept  any  form  of  con- 
tract from  the  company  as  might  be  deemed  desirable,  or  to  his 
mutual  interest,  so  long  as  such  contract  is  not  against  good  public 
policy  or  does  not  interfere  with  the  rights  or  interests  of  any  other 
party." 

In  Oregon,  Tennessee,  Iowa,  Vermont,  New  Hampshire,  Vir- 
ginia, Colorado,  Ohio,  Arizona  and  Canada:  "There  is  no  such  law." 
"The  question  has  never  been  raised ;"  and  the  commissioners  de- 
cline to  venture  an  opinion. 

Since  the  above  replies  were  received,  however.  Commissioners 
Folk,  of  Tennessee,  and  Cutting,  of  Massachusetts,  have  expressed 
themselves  in  favor  of  short  term  distribution  in  their  reports. 

From  Nevada  alone  comes  an  answer  in  favor  of  Commissioner 
Host's  contention  for  short  period  distribution  of  surplus,  and  the 
only  reason  given  for  the  answer  by  the  commissioner  of  that  state 
is  that  he  has  read  Mr.  Host's  brief  on  that  subject. 

Thus  it  appears  that  nearly  all  the  commissioners  of  insurance 
in  the  United  States  are  opposed  to  the  stand  taken  by  Dr.  Fricke 
and  Mr.  Host.  Even  those  who  have  declined  to  venture  an  opinion 
on  the  subject  say  this  much,  that  there  is  no  such  law  in  their 
states,  and  that  the  question  has  never  been  raised.  Some  of  the 
commissioners  have  expressed  themselves  as  being  in  favor  of  com- 
pelling the  companies  to  "render  an  account  of  their  business"  at 
short  intervals,  but  there  is  a  vast  difference  between  such  account- 
ing and  mere  distribution  of  surplus  at  short  intervals,  for,  while 
the  law  prescribes  a  minimum  amount  to  be  kept  as  reserve,  it  does 
not  prescribe  a  maximvmi,  nor  does  it  forbid  the  setting  aside  of  a 
part  of  the  surplus  as  a  so-called  "special  reserve"  which  is  merely 
a  subterfuge  to  evade  the  law.  It  should  also  be  remembered  that 
an  account  is  rendered  every  year  in  the  annual  statements  required 
to  be  filed  with  the  commissioner  of  insurance,  and  if  the  data  con- 
tained in  such  statements  are  insufficient  to  show  the  results  to 
policyholders,  then  the  commissioners  should  call  for  and  publish 
such  additional  information  as  is  necessary  to   show  the  financial 

[713] 


I02  The  Anuals  of  the  American  Academy 

strength  of  the  companies,  their  methods  of  conducting  the  business, 
and  the  actual  results  to  policyholders,  for  the  surplus  is  a  part  of  the 
savings  bank  feature  of  life  insurance,  and  if  it  is  carefully  invested 
and  handled  by  honest  and  efficient  financiers  at  an  expense  com- 
mensurate with  the  service  rendered,  then  it  matters  not  whether 
it  is  distributed  once  in  five  years,  once  in  ten  years,  or  once  in 
twenty  years. 

The  arguments  against  deferred  dividend  contracts  and  for 
distribution  at  short  intervals  are  as  follows:  first,  if  a  person  dies 
or  lapses  his  policy  before  the  end  of  the  period,  he  loses  the  sur- 
plus accumulated  up  to  the  time  of  death  or  lapse!  That  is,  if  the 
policyholder  had  taken  an  annual  dividend  policy  he  would  not 
forfeit  so  much  as  on  the  deferred  dividend  policy.  This  argument 
is  perfectly  good  as  far  as  it  goes,  but  carried  to  its  logical  conclu- 
sion, it  would  forbid  the  issuance  of  all  limited  payment  life  policies 
and  all  kinds  of  endowment  policies,  for  in  the  event  of  death  the  pure 
term  policies  would  be  the  best,  because  the  policyholder  would  have 
paid  in  less  money  on  that  plan  than  on  any  other,  and  the  amount 
of  indemnity  would  be  the  same.  In  case  of  death  the  policyholder 
loses  the  reserve  on  limited  payment  life  and  endowment  policies, 
and  this  amounts  in  most  cases,  to  much  more  than  the  surplus  on 
any  kind  of  policy. 

Second,  it  is  argued  that  the  accumulation  of  a  large  surplus 
leads  to  extravagance  in  expenses.  In  this  connection  we  need  only 
mention  the  high  salaries,  the  ornamentation  of  buildings,  the 
prizes,  bonvises  and  extra  commissions  given  to  increase  the  volume 
of  new  business.  But,  to  ascribe  all  this  to  the  accumulation  of  sur- 
plus is  not  warranted  by  the  facts.  It  is  perhaps  true  in  part  that 
a  large  surplus  serves  as  an  inducement  to  extravagant  expenditures, 
but  the  same  extravagance  is  found  in  companies  that  do  not  accu- 
mulate a  large  surplus.  This  was  clearly  shown  by  the  investigation 
of  the  Washington  Life.  In  that  company,  the  surplus  had  been 
very  low  for  many  years,  ranging  from  3  to  5  per  cent,  of  the  assets, 
while  the  surplus  in  other  companies  ran  from  10  to  25  or  30  per 
cent.  The  extravagance  revealed  by  the  investigation  of  the  Wash- 
ington Life  was  a  surprise  even  to  those  who  were  well  informed. 
It  has  been  stated,  somewhat  humorously,  that  under  the  old  man- 
agement the  surplus  was  squandered  so  fast  that  it  did  not  have 
time  to  accumulate.      If  the  statement  is  true  that  "the   deferred 

[714] 


The  Distribution  of  Surplus  in  Life  Insurance  103 

dividend  contract  is  the  root  of  all  the  evils  in  life  insurance,"  then  a 
company  which  distributes  its  surplus  annually  should  be  free  from 
those  evils.  What  are  the  facts  ?  One  company  which  claims  to  be 
a  purely  annual  dividend  company,  shows  an  increase  in  salaries 
far  greater  than  that  of  the  business  of  the  company.  The  per  cent, 
increase  in  the  various  items  from  1893  to  1904  was  as  follows: 

1.  Insurance  in  force   59-35  per  cent. 

2.  Gross   income    5975  per  cent. 

3.  Surplus    18.21  per  cent. 

4.  Assets     63.63  per  cent. 

5.  Commissions  to  agents   60.37  per  cent. 

6.  Salaries     74-23  per  cent. 

The  increase  in  salaries  in  this  case  is  entirely  out  of  propor- 
tion to  the  other  items,  and  yet  it  is  claimed  to  be  a  purely  annual 
dividend  company.  The  same  extravagance  is  also  found  in  some 
of  the  assessment  companies  that  have  neither  reserve  nor  surplus 
accumulated.  The  expenditures  of  some  assessment  companies  has 
risen  to  such  an  extent  that  the  legislature  of  the  State  of  New 
York,  in  1905,  found  it  necessary  to  pass  a  law  limiting  their  ex- 
penses. How  the  accumulation  of  surplus  can  be  responsible  for 
the  lavish  expenditures  of  such  associations  has  not  been  explained. 

Third,  it  is  argued  that  the  accumulation  of  surplus  leads  to  the 
misuse  of  trust  funds  in  speculation  and  investment  for  the  personal 
profit  of  the  officers.  This  is  also  true  in  part,  but  in  part  only,  for. 
the  entire  reserve  may  l)e  thus  misused,  provided  it  is  made  to  earn 
sufficient  interest  to  comply  with  the  law.  For  example,  if  money 
will  earn  in  the  market,  say  5^  per  cent.,  and  only  4  per  cent,  is 
required  by  law  to  maintain  the  reserve,  there  is  a  margin  of  ij.4 
per  cent.  Thus,  the  financiers  may,  if  they  desire,  so  use  the  money 
as  to  earn  4  per  cent,  or  45^  per  cent,  for  the  company  while  they 
pocket  the  balance.  This  may  be  done  by  direct  personal  loans, 
by  deposits  in  banks  and  trust  companies,  and  borrowing  from 
them,  or  by  the  renting  of  buildings  to  favored  tenants,  or  in  a 
variety  of  ways  that  we  need  not  dwell  on  here. 

Fourth,  it  is  argued  that  the  charters  of  the  companies  and  the 
laws  of  some  states  forbid  the  deferring  of  dividends  for  more  than 
five  years.  It  will  be  observed  that  the  language  of  the  Wisconsin 
law,  before  the  recent  amendment,  was  permissive  only,  unless  it 

[7.15] 


104  The  Annals  of  the  American  Academy 

could  be  clearly  shown  that  the  word  "may"  would  have  to  be  con- 
strued to  be  mandatory  in  order  to  give  effect  to  the  law.  The 
supreme  court  held  that  it  was  permissive  only  and  the  same  con- 
struction was  put  upon  a  similar  law  in  the  State  of  Illinois.  But 
in  the  Wisconsin  case  it  was  argued  that  the  context  of  the  law 
made  it  mandatory  on  the -theory  that  a  corporation  can  do  only  that 
which  is  specified.  The  law  specified  that  distribution  might  be 
made  within  five  years,  but  said  nothing  about  longer  periods,  hence 
it  is  claimed  that  the  word  "may"  applied  only  within  the  five-year 
period.  The  court,  however,  did  not  admit  the  force  of  that  argu- 
ment. 

The  company  also  relied  on  a  section  (87)  of  the  laws  of 
New  York  passed  in  1868,  which  reads  as  follows : 

"Any  domestic  life  insurance  corporation  \rhich  by  its  charter  or  articles 
of  association,  is  restricted  to  making  a  dividend  once  in  two  or  more  years 
may  hereafter,  notwithstanding  anything  to  the  contrary  in  such  charter 
or  articles,  make  and  pay  over  dividends  annually,  or  at  longer  intervals, 
in  the  manner  and  proportions  and  among  the  parties  provided  for  in  such 
charter  or  articles." 

The  commissioner  denied  that  this  law  had  any  effect  in  Wis- 
consin, but  if  it  modifies  or  alters  the  charter  or  articles  of  associa- 
tion in  any  way,  and  the  Wisconsin  law  provides  that  the  companies 
shall  conduct  their  business  according  to  their  charters,  then  it  must 
have  some  force  even  in  Wisconsin,  and  it  is  difficult  to  see  how  the 
supreme  court  could  hold  otherwise  than  it  did. 

Another  case  which  is  of  special  interest  at  this  time,  is  one 
brought  against  The  Independent  Order  of  Foresters,  decided  re- 
cently by  the  supreme  court  of  Missouri.  In  that  case  it  was  held 
that  the  policy,  after  three  payments  had  been  made,  had  an  equity 
in  the  surplus  of  the  association  that  gave  it  a  surrender  value, 
which  carried  the  policy  beyond  the  date  of  lapse.  In  this  case,  it 
may  be  said,  the  court  decided  according  to  what  ought  to  be  the 
rule.  In  the  Wisconsin  case,  the  court  decided  according  to  what 
is  the  rule  in  law  and  practice,  but  did  not  necessarily  aim  to  set  up 
an  ideal. 

But  the  controversy  is  by  no  means  limited  to  Wisconsin.  It 
is  of  national  and  international  importance,  for  the  three  largest 
companies  are  doing  business  in  all  parts  of  the  world.     The  con- 

[716] 


The  Distribution  of  Surplus  in  Life  Insurance  105 

troversy  now  going  on  in  New  York  offers  a  great  deal  of  food  for 
reflection.  Dut  that  has  been  sufficiently  aired  in  the  press  to  make 
a  review  of  it  in  this  connection  unnecessary.  Suffice  it  to  say  that 
the  exposures  that  have  been  made  show  clearly  that  there  are 
numerous  defects  in  the  state  laws  and  that  there  has  been  a  great 
deal  of  the  sin  of  omission  on  the  part  of  state  officials,  but  it  also 
shows  with  equal  clearness  that  the  policyholder  has  been  grossly 
negligent  with  respect  to  his  own  interests.  Seldom  if  ever  does  he 
read  his  o\\'n  policy,  or  scan  the  annual  statements  of  his  company, 
but  what  is  worse  he  never  attends  the  annual  meeting,  even  if  he 
has  an  opportunit}'  to  do  so.  At  the  annual  meeting  of  one  of  the 
large  companies,  only  eleven  members  were  present,  though  about 
eight  hundred  thousand  had  the  right  to  vote.  The  great  distance 
between  the  policyholder's  residence  and  the  company's  home  office 
makes  attendance  at  the  annual  meetings  impracticable,  besides  it 
would  be  impracticable  to  conduct  business  if  such  large  numbers 
could  be  present.  The  result  of  this  condition  of  things  is  that  a 
few  men  have  gained  control,  and  the  policyholder,  the  one  who 
above  all  others  has  an  interest  in  the  company,  has  lost  hold  of  the 
purse  strings. 

From  these  facts,  and  from  statistics  that  are  easily  obtainable, 
to  show  the  trend  of  dividends,  expenses,  earnings,  etc.,  it  appears 
that  the  deferred  dividend  policy  is  not  the  source  of  all  evils  in  life 
insurance,  although  that  assertion  has  been  made  repeatedly  by  men 
who  ought  to  be  well  informed.'  Nor  is  the  deferred  dividend  policy 
an  unmixed  evil  in  itself,  for,  in  well  managed  companies,  such 
policies  have  been  even  more  profitable  than  annual  dividend  poli- 
cies, and  as  far  as  the  gambling  element  is  concerned  it  is  not  even 
as  bad  as  the  forfeiture  of  the  reserve  in  high  priced  endowment 
policies  in  case  of  death. 

The  root  of  the  evil  lies  much  deeper  than  the  mere  question 
of  distribution  of  surplus.  Comparing  expenses  of  companies  issu- 
ing nothing  but  annual  dividend  policies,  with  the  expenses  of  de- 
ferred dividend  companies,  we  find  no  material  difference.  It  is 
argued  with  a  great  deal  of  force  that  deferred  dividend  policies 
have  been  disappointing  to  their  holders,  but  the  same  is  true  of 
annual  dividend  policies.  The  dividends  on  an  annual  dividend 
policy  should  increase  from  year  to  year,  with  the  increase  in  the 
amount  invested,  as  they  do  in  conservative  and  well  managed  com- 

[717] 


io6  The  Annals  of  the  American  Academy 

panics.  But  numerous  cases  can  be  cited  where  the  dividends  on 
such  poHcies  have  been  stationary  or  even  decreasing  from  year  to 
year.  What,  then,  is  the  remedy?  First  of  all,  there  must  be  pub- 
licity. Publicity  has  indeed  been  coming  during  the  last  few  months. 
The  trouble  is  that  it  smacks  so  much  of  yellow  journalism  and 
that  the  statistics  publislred  have  been  so  poorly  digested.  Rumors 
have  been  stated  as  facts,  and  figures  have  been  cast  together  to 
make  a  showing — anything  to  make  an  article  under  a  "scare  head" 
to  sell  the  paper. 

Comparisons  have  been  made  almost  entirely  on  the  basis  of 
premium  receipts  and  growth  of  business.  This  is  both  illogical 
and  unfair.  In  one  of  the  magazines,  which  is  publishing  a  series 
of  articles  on  insurance,  there  appears  a  table  showing  the  percent- 
age of  dividends  to  premium  receipts  in  the  three  large  New  York 
companies  and  the  percentage  on  the  same  basis  of  the  Phoenix 
^Mutual  of  Connecticut.    The  percentages  are  as  follows : 

Equitable     9.39  per  cent. 

Mutual  Life   1 1.60  per  cent. 

New  York  Life  9.54  per  cent. 

Phoenix    iVlutual    1904  per  cent. 

The  difference  between  the  Phoenix  Mutual  and  the  New  York 
companies  is  indeed  striking.  But  does  it  mean  anything?  Per- 
centages corresponding  with  those  given  above  for  the  Connecticut 
Mutual  and  the  Michigan  JNIutual  are  25.50  per  cent,  and  20.90  per 
cent,  respectively,  while  in  another  company,  which  is  in  good 
standing,  the  percentage  on  the  same  basis  was  about  one-third  of 
I  per  cent.  But  such  comparisons  are  not  worth  the  making  except 
for  the  express  purpose  of  misleading.  They  are  dishonest  and 
should  be  suppressed.  They  are  not  a  true  index  of  a  company's 
efficiency,  because  one  company  may  be  rapidly  expanding,  while 
another  company  has  a  large  amount  of  paid  up  policies  on  its  books 
that  call  for  large  dividends,  while  the  premiums  are  low,  and 
vice  I'crsa.  There  is  no  single  basis  on  which  comparisons  may  be 
made  with  justice  to  all  companies.  The  items  must  be  separated, 
so  as  to  show  the  investment  expense  per  imit  invested,  and  the 
insurance  expense  per  unit,  say  $1,000,  of  insurance  written  or  in 
force ;  the  high  priced  endownient  business  and  the  single  premium 
life  business  must  be  separated  from  the  low  priced  life  and  term 

[718] 


The  Distribution  of  Surplus  in  Life  Insurance  107 

business,  because  each  class  of  business  has  expense  items  and  ratios 
pecuHar  to  itself.  Among  these  may  be  mentioned  the  relatively 
high  commission  paid  on  life  policies  compared  with  the  commis- 
sions on  endowment  policies ;  the  high  commissions  on  new  business 
as  compared  with  renewals,  and  the  high  investment  expenses  con- 
nected with  endowment  insurance  as  compared  with  ordinary  life 
and  term  insurance.  The  importance  of  these  points  will  be  seen 
when  it  is  considered  that  in  one  company  the  percentage  of  endow- 
ment insurance  to  the  total  in  force  is  several  times  as  high  as  in 
other  companies ;  that  in  one  company  the  new  premiums  exceed 
the  renewals,  while  in  another  company  the  new  premiums  are  only 
about  one-tenth  as  large  as  the  renewals,  and  so  on.  These  are  dis- 
tinctions of  vital  importance  to  an  intelligent  understanding  of  the 
insurance  business  as  it  exists  to-day,  and  it  is  high  time  that  the 
correspondents  of  the  daily  press  take  pains  to  analyze  their  statis- 
tics, if  they  desire  to  be  of  real  service  to  the  public.  If  the  statistics 
published  were  cast  into  intelligible  form,  and  presented  so  as  to  show 
the  true  and  tinal  results  to  policyholders,  much  of  the  present  abuse 
in  life  insurance  management  would  disappear. 

But  publicity  alone  is  not  sufficient.  There  must  also  be  effect- 
ive control  by  the  policyholders,  and  this  can  be  brought  about  in 
either  of  two  ways,  viz.,  by  a  representative  system  of  government 
similar  to  that  now  in  vogue  in  most  of  the  fraternal  associations, 
or  by  the  Australian  system  of  voting  through  the  mails.  It  is  not 
intended  here  to  uphold  fraternal  insurance  as  it  exists  in  the  United 
States,  for  the  system  of  raising  funds  by  post  mortem  assessments 
has  proven  a  failure.  But  the  representative  system  has  much  to 
commend  it.  It  is  at  the  very  foundation  of  the  American  govern- 
mental system,  and  has  worked  well  in  thousands  of  associations  of 
various  kinds.  The  only  drawbacks  are  the  expense  of  attending 
meetings,  and  the  danger  of  representation  being  lost  on  the  way, 
as  has  been  the  case,  only  too  often,  in  political  conventions. 

The  Australian  system  of  voting  is  as  follows :  Every  candidate 
for  an  office  in  the  company  must  announce  his  candidacy  before  a 
specified  date.  A  list  of  such  candidates  is  then  sent  to  each  mem- 
ber qualified  to  vote ;  he  marks  the  names  he  desires  to  vote  for,  and 
returns  the  list  in  a  scaled  envelope  to  the  home  office,  where  they 
are  all  opened  and  counted  on  a  certain  day  fixed  for  election. 

This  method  is  economical  and  gives  all  members  a  voice  in 

[719] 


io8  The  Annals  of  the  American  Academy 

the  election,  but  it  does  not  afford  opportunities  for  discussion,  and 
this  is  no  small  advantage  in  the  representative  system.  The  Austra- 
lian system  may  still  offer  opportunity  for  corruption  in  elections, 
but  the  counting  of  the  votes  could  undoubtedly  be  so  safeguarded 
as  to  reduce  this  danger  to  a  minimum. 

With  a  system  of  company  management  that  would  make  the 
officers  directly  responsible  to  the  policyholders,  much  of  the  abuse 
in  insurance  management  would  disappear  and  the  necessity  for 
government  supervision  of  any  kind  would  be  greatly  lessened.  But 
government  supervision  has  come  to  stay,  and  there  is  need  for  its 
strengthening  and  expanding.  The  great  lack  of  uniformity  in  the 
state  laws,  the  duplication  of  work  by  many  departments  where  one 
is  sufficient,  as  well  as  the  laxity  and  incompetency  on  the  part  of 
some  state  officials,  point  more  strongly  than  ever  to  the  necessity 
for  national  supervision  of  all  companies  doing  an  interstate  business. 


BRITISH  AND  AMERICAN  TRADE  UNIONISM 


By  William  English  Walling, 

New  York  City. 


Friends  and  enemies  of  trade  unionism  in  this  country  have 
ahke  assumed  that  the  unions  of  Great  Britain  are  a  more  highly 
developed  form  of  labor  organization  than  the  unions  of  the  United 
States.  Undoubtedly  any  scientific  or  historical  view  of  the  labor 
movement  in  the  United  States  must  be  based  on  a  study  of  the 
British  unions.  There  is  no  question  that  the  union  idea  came  to  us 
not  from  the  Continent  of  Europe  which  is  furnishing  us  a  large 
majofity  of  our  working  people  to-day,  but  from  Great  Britain  which 
gave  us  our  people  and  our  institutions  over  a  hundred  years  ago. 
Nor  is  there  any  doubt  that  the  labor  movement  reached  a  very 
highly  developed  form  in  Great  Britain  some  years  ago  before  it  had 
attained  any  considerable  strength  here  or  even  before  it  had  spread 
to  any  considerable  proportion  of  our  trades  and  industries. 

But  is  it  not  true  that  the  American  unions  are  developing 
toward  the  British  type,  but  quite  the  reverse.  Just  as  America 
leads  Great  Britain  in  industrial  development,  in  the  enterprise  and 
aggressiveness  of  her  employers,  so  she  is  beginning  to  lead  Great 
Britain  in  the  intelligence  and  thoroughness  of  her  organization  of 
labor. 

What  is  most  important  in  the  study  of  the  labor  movement 
of  the  United  States  to-day  is  not  the  similarity,  but  the  contrast 
between  the  British  and  the  American  unions.  The  failure  to  see 
that  the  British  form  of  trade  union  has  not  only  ceased  to  advance 
in  the  United  States,  but  is  decaying  both  relatively  when  compared 
with  the  newer  types  of  unions  and  also  absolutely  furnishes  the 
only  adequate  explanation  of  a  series  of  the  most  radical  misinter- 
pretations of  the  American  labor  movement  that  seems  to  have  no 
end.  What  are  the  features  of  the  trade  unions  of  Great  Britain 
most   vented    in   public    discussions   of   the    labor   question   to-day? 

[721] 


no  The  Annah  of  the  Americmi  Academy 

Large  accumulated  funds  and  insurance  benefits.  The  effort  to 
preserve  the  proportion  of  intelHgent  and  skilled  workers  in  the 
industry  against  raw  and  inexperienced  recruits.  The  general 
absence  of  closed  shop  agreements.  These  features  are  paraded 
by  the  friends  of  labor  in  this  country  as  evidence  of  the  merits  of 
trade  unionism  where  it  Jias  reached  its  most  developed  form.  On 
the  other  hand,  the  equally  British  policies  of  restriction  of  appren- 
tices, opposition  to  the  subdivision  of  labor,  restriction  of  output 
(to  afford  work  for  all  the  members  of  the  union),  indirect  restric- 
tions of  machinery  (through  the  demand  that  wages  paid  for  the 
workers  on  new  machines  be  so  much  increased  that  the  introduc- 
tion of  the  machines  is  automatically  limited),  are  held  up  by  the 
enemies  of  the  unions  here  as  the  horrible  example  of  what  is  in 
certain  store  in  the  future  for  the  United  States.  Both  enemies 
and  friends  have  failed  to  see  that  the  two  movements  having  the 
same  name  and  the  same  country  of  origin  have  come  to  rest  on 
principles  as  widely  divergent  as  the  political  and  economic  institu- 
tions of  Great  Britain  and  the  United  States.  Both  movements 
are  to  be  sure  primarily  economic  rather  than  political  in  their 
character,  both  are  built  on  an  organization  of  labor  by  trade  or 
industry  rather  than  an  organization  by  locality,  both  are  seeking 
first  of  all  more  wages  and  shorter  hours,  and  both  rely  largely  on 
the  strike.  But  here  the  similarit}'  in  essentials  seems  to  cease.  The 
two  movements  differ  in  the  origin  of  their  power,  in  the  form  of 
their  organization,  in  their  tactics  and  in  their  ultimate  aim. 

In  claiming  that  American  unions  are  developing  toward  the 
British  type,  the  friends  of  unionism  in  this  country  in  so  far  as 
they  have  any  influence  at  all  on  a  movement  that  is  so  deeply  eco- 
nomic and  unconscious  in  its  character,  pledge  it  to  the  narrow 
sectional  or  "trade"  policy  of  its  British  prototype.  The  funda- 
mental principle  that  underlies  every  one  of  the  policies  that  char- 
acterize these  unions,  whether  good  or  bad,  is  the  effort  to  gain  and 
maintain  a  monopoly  of  the  skilled  workers  in  a  given  industry  or 
trade. 

The  unions  of  Great  Britain  are,  with  relatively  few  exceptions, 
"trade"  unions  in  a  distinct  narrow  sense.  They  arc  founded  not  so 
much  on  the  principles  of  the  organisation  of  employees  against 
eniploxers  as  on  that  of  the  organization  of  a  certain  grade  of  labor 
against  all  other  grades.     The  principle  is  one  of  monopoly.     Hon. 

[722] 


British  and  American  Trade  Unioiiistn  m 

Carroll  D.  Wright  defends  this  monopoly  as  "the  vested  interest" 
of  the  worker  in  that  trade  in  which  he  has  put  so  many  years  of 
his  life.  And  from  this  point  of  view  alone  can  the  monopoly  be 
defended.  But  it  must  be  remembered  that  the  consumer,  that  is  to 
say  the  community,  rather  than  the  employer  must  usually  pay  the 
bill,  and  it  will  be  conceded  that  if  any  other  method  can  be  arrived 
at  by  which  the  worker's  condition  can  be  protected  without  caus- 
ing any  monopoly,  without  raising  prices  to  the  consumer,  and  with- 
out excluding  the  unskilled  laborers  who  are  constantly  clamoring 
for  work  and  to  whom  the  community  certainly  owes  an  equal 
debt,  it  would  be  better  for  the  skilled  worker,  the  unskilled  worker, 
the  consumer  and  the  whole  community  alike. 

The  attempted  monopoly  of  skill  fostered  by  the  British  unions 
has  been  the  essence  of  their  being.  By  the  direct  restriction  of 
apprentices  in  the  trade,  by  refusing  to  allow  them  to  enter  the 
union  and  benefit  from  its  advantages  and  by  the  opposition  to  the 
division  and  speciahzation  of  labor,  involved  in  their  insistence  that 
the  apprentice  shall  learn  "all  the  trade,"  the  British  unions  attempt 
to  maintain  a  monopoly  of  the  skilled  men.  This  policy  militates 
against  all  improvements  in  industry  that  are  based  on  the  attempt 
to  save  the  labor  of  skilled  and  exceptionally  intelligent  and  trained 
men  by  substituting  men  of  less  training  and  skill  where  this  can 
be  economically  accomplished. 

The  British  unions  widely  encourage  the  restriction  of  output. 
By  restriction  of  output  we  mean  an  unwritten  law  of  the  working 
people  that  limits  the  amount  of  work  a  man  should  do.  The  fact 
that  the  unions  did  not  invent  this  law,  but  the  individual  workers 
themselves,  does  not  relieve  them  from  the  responsibility  for  its 
enforcement.  The  unwritten  law  can  be  made  effective  only  when 
the  employer's  discipline  is  broken  down  by  the  counter-discipline 
of  the  union.  The  British  unions  find  it  a  most  convenient  means 
of  securing  a  monopoly  of  labor.  Having  secured  control  over  the 
amount  of  work  done,  they  attempt  by  doing  less  work  to  secure 
jobs  either  (i)  for  union  men  out  of  employment  through  no  fault 
of  their  own,  or  (2)  for  relatively  inferior  union  workmen.  This 
system  has  also  been  further  developed  into  a  conscious  attempt  not 
only  to  secure  the  employment  for  all  the  union's  unemployed,  but 
(3)  even  for  the  far  more  momentous  purpose  of  bringing  about 
a  scarcity  of  labor.     As  soon  as  this  point  of  scarcity  approaches, 

[723] 


112  The  Annals  of  the  American  Academy 

the  wages  of  labor  tend  to  rise  by  the  natural  economic  law  of  sup- 
ply and  demand,  the  union  enforces  the  recognition  of  the  conditions 
of  the  labor  market  and  has  the  employer  and  the  industry  at  its 
command. 

Not  only  do  the  greater  number  of  the  British  unions  commonly 
seek  a  monopoly  of  skilled  men  and  a  monopolistic  control  of  the 
amount  of  work  to  be  done  by  these  men,  but  they  also  seek  to 
obtain  a  partial  monopoly  of  the  benefits  of  industrial  progress. 
Those  unions  where  machinery  is  being  most  rapidly  introduced 
always  deny  that  they  have  restricted  the  machine,  and  their  denial 
is  true  if  taken  in  a  narrow  sense.  But  they  do  claim  that  because 
certain  industrial  processes  which  are  due  to  the  scientific  or  tech- 
nical advances  of  society  at  large  have  happened  to  strike  their 
industry,  they  and  no  others  should  obtain  a  large  share  of  the 
benefit  of  these  processes.  On  this  ground  they  demand,  when 
their  men  are  put  to  work  on  new  or  better  machines  that  they 
should  secure  considerably  better  wages  even  if  the  work  to  be 
done  is  simpler  in  its  character  than  what  was  done  before.  Or 
they  restrict  the  number  of  machines  at  which  a  man  is  allowed  to 
work  on  the  ground  not  that  the  machines  ought  to  be  prohibited, 
but  that  they  should  not  be  introduced  so  rapidly  as  to  throw  a  large 
number  of  men  out  of  employment. 

To  these  grounds  for  restriction  of  output,  a  fourth,  the  most 
dangerous  of  all,  has  recently  assumed  a  new  and  threatening 
importance.  In  recent  years  since  the  complete  failure  of  the  great 
engineers'  strike  which  cost  the  British  unions  such  an  immense  sum 
and  since  the  epidemic  of  adverse  decisions  in  the  courts  have  tied 
up  union  treasuries,  strikes  have  grown  more  and  more  infrequent 
and  unsuccessful.  Notwithstanding  the  large  accumulated  funds  of 
the  unions,  it  has  been  found  that  the  even  greater  financial  resources 
of  the  well-organized  employers'  associations,  backed^  as  they  have 
been  recently  by  the  financial  community  and  the  courts,  have 
enabled  them  to  hold  out  either  until  the  working  people  were 
starved  into  submission  or  until  new  hands  were  trained  into  the 
industry.  But  the  strike  is  not  the  last  resource  of  a  laboring  popu- 
lation that  cannot  be  physically  coerced  to  labor.  Since  the  strike 
as  the  chief  weapon  of  unionism  has  begun  to  fail,  the  Ca  Canny 
system  has  come  to  take  its  place.  This  term  is  simply  the  British 
expression  for  the  restriction  of  output  when  socially  enforced  by  the 

[724] 


British  and  American  Trade  Unioyiisni  113 

working  people  who  call  out  the  Scotch  word  "canny"  to  their  fellow 
workers  when  they  are  of  the  opinion  that  these  latter  are  working 
harder  or  faster  than  necessity  or  good  policy  dictates.  But  the 
term  has  become  more  specialized  recently  than  this  definition  would 
indicate.  It  has  come  to  stand  not  so  much  for  the  restrictions 
above  mentioned  made  for  the  hopeful  purposes  of  increasing  em- 
ployment or  creating  a  scarcity  of  labor  as  to  those  desperate 
reprisals  of  men  who  have  been  beaten  in  a  strike  and  who  say,  "if 
we  cannot  increase  the  amount  of  our  pay  no  power  on  earth  can 
prevent  us  from  decreasing  the  amount  of  our  work."  It  is  not  an 
ordinary  businesslik-e  attempt  to  secure  a  monopoly,  but  a  new  form 
of  revolt  far  more  dangerous  to  industry  and  the  employer  than  the 
strike  itself. 

Now,  the  development  of  the  American  industry  and  the  flood- 
ing of  the  American  labor  market  with  cheap  foreign  labor  has 
proceeded  at  such  a  pace  that  any  and  all  of  these  restrictive  poli- 
icies  are  forever  impossible  in  this  country  upon  any  such  scale 
as  they  have  been  practised  on  the  other  side.  The  relative  suc- 
cess of  the  British  unions  in  securing  these  various  monopolistic 
charges,  as  against  other  unorganized  workmen  and  society  at  large, 
is  due  fundamentally  to  one  fact  alone,  the  greater  importance  of 
manual  skill  in  British  industry. 

The  unions  of  Great  Britain  were  founded  at  a  time  when 
manual  skill  was  of  much  greater  importance  than  it  is  in  Great 
Britain  to-day.  In  America  the  demand  for  this  sort  of  skill  has 
to  an  even  greater  extent  been  replaced  by  a  demand  for  men  with- 
out any  special  manual  skill,  but  with  an  intelligent  grasp  of  the 
rudimentary  principles  of  machinery,  a  ready  adaptability  to  the 
ever-changing  tasks  of  a  machine  age  or  to  that  great  mass  of 
unskilled  work,  handling  of  raw  materials  and  products  and  other 
simple  tasks  that  have  also  been  created  by  the  machine  development. 

In  a  former  article^  on  the  importance  of  unskilled  labor  in  the 
United  States,  we  have  shown  the  underlying  economic  causes  of 
this  development.  It  is  only  necessary  now  to  point  out  that  this 
economic  development  has  been  followed  by  corresponding  changes 
in  the  form  and  organization  of  the  labor  unions  themselves.  The 
conclusions  of  the  previous  article  were  briefly  that  new  machinery 
and   the   subdivision   of   labor   were   increasing   the   proportion   of 

'The  Annals,  Vol.  xxiv,  page  296. 

[725] 


114  ^^i^  Annals  of  the  American  Academy 

relatively  unskilled  labor  in  all  the  leading  industries,  that  the  new 
skilled  trades  demand  intelligence  and  responsibility  rather  than 
manual  skill,  while  the  new  unskilled  trades  demand  speed  and 
nervous  intensity  rather  than  mere  physical  power  and  endurance 
as  before.  It  was  seen  that  the  division  of  an  industry  into  a 
hundred  instead  of  half  a  dozen  Ijranches  had  forced  the  unions  of 
the  many  trades  of  each  industry  into  one  new  type  of  organization, 
the  industrial  union.  It  was  also  seen  that  the  difficulty  of  bring- 
ing machinery  into  certain  kinds  of  work  common  to  all  industry 
such  as  teaming  and  driving,  machine  repairing,  steam  engineering, 
firing,  etc.,  had  increased  the  numerical  ratio  of  the  workmen  in 
these  relatively  unskilled  trades  and  caused  the  formation  of  new 
trade  unions  extending  not  through  one  or  two  industries  as  for- 
merly, but  covering  practically  the  whole  industrial  field.  All  of 
these  tendencies  have  had  their  effect  on  the  form  of  labor  organiza- 
tion that  has  developed  in  the  United  States  until  it  has  grown  into 
such  a  different  thing  from  the  unionism  of  Great  Britain  that 
the  economics  and  historv  of  trade  unionism  in  that  countrv  have 
become  comparatively  useless  for  ours. 

The  British  unions  have  practically  failed  to  organize  unskilled 
labor  on  any  considerable  scale.  With  a  few  exceptions  the  only 
methods  by  which  the  British  labor  movement  has  been  able  to 
organize  the  unskilled  has  been  through  the  large  "common  labor" 
associations,  the  so-called  new  unionism,  a  form  of  labor  organiza- 
tion practically  unknown  in  the  United  States.  Here,  a  better  policy 
has  brought  much  better  results.  The  inter-trade  "industrial 
unions,"  after  organizing  the  skilled,  have  succeeded  in  organizing 
many  of  the  unskilled  trades  of  several  industries,  while  the  inter- 
industrial  "trade  unions"  have  organized  in  some  localities  nearly 
all  the  workers  of  some  trades  even  in  industries  where  no  unions  of 
skilled  workers  have  secured  a  foothold.  Common  laborers,  women 
and  newly  arrived  immigrants,  have  in  this  way  been  brought 
together  with  older  and  more  skilled  men  into  one  organization 
instead  of  being  left  alone  as  in  Great  Britain  to  struggle  along  in 
a  weak  or  temporary  union  of  their  own. 

Of  the  "industrial"  unions  of  America,  that  of  the  coal  miners 
with  more  than  a  quarter  million  members  is  by  far  the  most  im- 
portant. But  if  we  add  to  this  membership  that  of  other  purely 
industrial  unions,  such  as  the  butchers  with  34,000  members,  the 

[726] 


British  and  American  Trade  Unionsm  1.15 

iron  and  steel  workers  with  13,000,  the  carworkers  and  piano 
workers  with  about  10,000  each,  the  paper  makers  with  8,800  and 
the  potters  and  carriage  and  wagon  workers  with  about  5,200  each, 
we  have  87,000  in  addition  from  seven  unions  alone.  Other  indus- 
trial unions  that  owe  their  success  partly  to  the  label  are  included  in 
another  reckoning  below.  If  added  to  the  above,  we  would  have  a 
total  of  500,000  unionists  in  the  industrial  form  of  organization. 
Nor  is  this  all.  Those  federations  which  are  not  purely  local  are 
industrial  in  their  nature.  If  we  were  to  add  the  industrially  fed- 
erated building  trades  of  more  than  half  a  million  members,  our 
total  of  industrial  organization  would  considerably  exceed  1,000,000 
members.  And  the  work  of  a  considerable  majority  of  the  member- 
ship of  most  of  these  unions  is  to  be  classed  as  relatively  unskilled. 

The  membership  of  the  corresponding  unions  in  Great  Britain 
is  less  in  some  cases  and  in  all  it  is  more  or  less  along  trade  rather 
than  industrial  lines.  There  are  no  special  unions  of  any  importance 
among  the  butchers,  brewers,  car  workers,  piano  workers  or  car- 
riasfe  workers,  while  that  amono-  the  iron  and  steel  workers  is  con- 
fined  largely  to  the  smelters.  Their  membership  is  a  fraction  of 
that  of  the  corresponding  unions  in  the  United  States.  The  building 
trades,  without  any  national  central  organization,  are  split  up  into 
numerous  local  groups,  of  which  the  thirty  largest  do  not  contain 
half  of  the  whole.  The  largest  of  several  federations  of  coal  miners' 
unions  still  leaves  a  third  of  the  unions  outside,  while  the  principal 
power  is  in  the  hands  of  at  least  ten  different  unions,  besides  a  large 
number  of  small  ones.  Finally,  the  less  skilled  workers  about  the 
mines  are  either  separately  organized,  even  if  admitted  to  the  feder- 
ation, or  ignored  entirely,  while  the  miners  are  all  relatively  skilled 
men,  since  neither  the  machine  work  of  our  bituminous  fields  nor  the 
subdivision  of  labor  which  has  brought  unskilled  labor  into  the 
anthracite  regions  has  yet  come  into  use.  If  half  a  million  coal 
miners  are  organized  in  Great  Britain  against  half  that  number  in 
the  United  States,  the  coal  mining  industries  being  about  the  same 
in  both  countries,  it  is  partly  because  the  work  of  each  miner  goes 
so  much  further  here  on  account  of  the  better  methods  of  work,  and 
because  there  are  several  hundred  thousand  less  miners  in  the  United 
States. 

Another  means  b\'  which  American  unions  have  organized  the 
unskilled  is  through  the  new  type  of  "trade"  union  that  flourishes  in 

[727] 


ii6  TJie  A}inals  of  the  American  Academy 

several  or  all  industries  where  workers  of  the  trade  are  found.  In  a 
few  years  the  teamsters  have  increased  to  84,000  members,  of  which 
half  are  enrolled  in  the  Chicago  unions  alone.  At  the  Chicago 
ratio  500,000  of  the  600,000  teamsters  in  the  United  States  may  be 
considered  as  possible  future  members.  In  1901  the  six  principal 
unions  in  this  trade  in  Great  Britain  aggregated  less  than  25,000 
members.  Similarly  the  Stationary  Engineers  and  Firemen's 
Unions,  which  numbered  less  than  5,000  in  the  United  States  a  few 
years  ago,  have  grown  to  35,000  to-day.  The  five  leading  British 
organizations,  though  much  older,  had  in  1901  only  13,000  members 
and  the  federation  embraced  scarcely  more  than  20,000. 

American  unions  have  also  organized  the  workers  in  another 
capacity  entirely — as  consumers.  In  Great  Britain  the  power  of 
the  working  people  as  consumers  to  assist  the  working  people  as 
producers  has  been  almost  ignored.  The  only  form  of  organization 
of  consumers  that  has  succeeded  among  the  laboring  masses  there, 
has  been  the  great  co-operative  societies.  The  relation,  however, 
between  these  and  the  unions  is  not  only  very  weak,  but  has  at  times 
even  been  strained.  In  America,  on  the  other  hand,  we  have  the  boy- 
cott in  all  its  forms,  often  most  effective,  and  above  all  the  union 
label.  Depending  as  it  does  on  the  number  of  "union"  consumers, 
the  American  policy  of  organizing  the  great  masses  of  unskilled 
labor  is  the  foundation  of  its  success.  On  the  other  hand,  it  is 
largely  due  to  this  union  label  or  union  button  that  about  400,000 
American  working  people,  largely  unskilled,  have  been  able  to  organ- 
ize. The  numerical  strength  of  the  more  important  of  this  class  of 
organizations  in  1904  is  shown  in  the  following  table.  A  large  pro- 
portion of  the  workers  in  most  of  these  industries  is  relatively 
unskilled. 

Unions  Which  Depend  on  the  Label. 

(The  total  strength  of  the  unions  in  these  same  trades  and  industries  in 
Great  Britain  is  considerably  less  than  100,000,  some  of  them  having  no 
existence  there  at  all.) 

Clerks     50,000 

Hotel  and  restaurant  employees   49,000 

Garment  workers    4S.ooo 

Cigarmakers     40,500 

Boot  and  shoe  workers  32,000 

Brewery  workers    30,500 

[728] 


British  and  American  Trade  Unionism  117 

Barbers     23,600 

Musicians    22,000 

Bakers    16,200 

Printing  pressmen 16,000 

Shirt,  waist  and  laundry  workers  16,000 

Hatters     8,500 

Leather  workers   7,ioo 

Upholsterers     3,ooo 

Capmakers    2,500 

Ladies  garment  workers  2,200 

364.100 

In  this  country  we  also  have  the  federation  principle  developed 
to  an  extent  unknown  in  Great  Britain.  Federation  helps  more  than 
anything  else  perhaps  in  the  organization  of  the  unskilled.  The 
motto  of  the  American  Federation  of  Labor  is  "educate,  agitate, 
organize."  Practically  all  the  education  in  unionism,  the  agitation 
of  unionism  and  the  organization  of  unions  accomplished  in  Great 
Britain,  has  been  done  not  by  any  federation,  but  by  the  separate 
trade  unions.  It  has  therefore  necessarily  been  along  narrow  lines 
in  its  principles  and  restricted  in  its  application  to  those  least  in 
need  of  it.  In  America,  speakers,  organizers  and  financial  assistance 
are  never  lacking  for  the  new  and  struggling  organization  that  has 
shown  itself  worthy  of  support.  The  organizers  of  the  American 
Federation  of  Labor  are  numbered  by  the  hundred  and  each  year 
several  million  dollars  are  distributed  to  the  weaker  unions  in  one 
way  or  another  through  the  national  and  local  organizations  that 
compose  it.  The  federation  has  proven  invaluable  to  the  weaker 
unions  in  times  of  strikes.  Not  only  has  it  made  possible  a  far  more 
effective  financial  assistance  to  the  unions  of  the  unskilled,  but  it  has 
even  brought  about  a  good  many  sympathetic  and  even  some  more 
or  less  general  strikes,  such  as  those  in  Chicago,  Kansas  City,  Den- 
ver and  San  Francisco,  some  of  them  by  no  means  without  some 
success. 

Federation  in  Great  Britain  is,  comparatively  speaking,  in  a 
rudimentary  stage.  Hardly  a  fourth  of  the  two  million  unionists  are 
members  through  their  organization  of  the  new  federation  of  trade 
unions.  Only  in  the  engineering  trades,  called  by  our  workmen  the 
iron  trades,  has  Britain  led.  Here  the  federation  includes  over  two 
hundred  thousand  union  members.     The  strongest  of  the   British 

I729I 


ii8  The  Annals  of  the  American  Academy 

federations  are  not  federations  in  the  American  sense  at  all.  They 
are  composed  not  of  an  allied  group  of  trades,  but  of  man}^  unions 
operating  either  in  the  same  trade  or  the  same  industry  and  ought  to 
be  a  single  union.  So  in  the  place  of  the  United  Mine  Workers,  a 
typical  union,  Great  Britain  has  a  loose  federation  that  includes 
nearly  all  of  the  unions  in  the  mining  industry.  The  largest  federa- 
tion in  the  textile  industry  is  not  even  so  much  centralized.  It 
includes  only  about  three-quarters  of  the  unionists  in  the  industry. 

The  high  degree  of  decentralization  in  the  British  union  world 
appears  in  nearly  every  trade  and  industry.    The  ten  largest  unions 
among  the  miners,   for   instance,  embrace   scarcely  half  the  total 
membership,  while  the  twelve  principal  unions  in  the  textile  indus- 
try include  less  than  half  of  the  total  membership.    So  it  is  with  all 
the  leading  trades.    In  America  two  unions,  one  far  more  important 
than  the  other,  include  practically  all  of  what  are  called  the  engin- 
eering trades  in  Great  Britain,  while  the  five  largest  unions  there 
include  only  a  minority  of  all   the  union   members.     In  America 
there  is  one  teamsters'  organization.    In  Great  Britain  there  are  five 
important  organizations  in  this  field  and  twenty  small  ones.     There 
is  one  organization  of  carpenters  in  the  United  States  which  has 
more  than  nine-tenths  of  all  the  union  carpenters  in  the  country, 
while  there  are  three  important  organizations  in  Great  Britain.     In 
America  there  is  one  important  organization  of  seamen,  in  Great 
Britain  six.     In  America  there  is  one  important  organization  of 
garment  workers,  in  Great  Britain  six.    With  the  wood  workers  the 
proportion   is   again   one   to   six ;   with   the   longshoremen,   one   to 
seven ;  with  the  compositors,  one  to  five ;  with  the  boot  and  shoe 
workers,  one  to  two ;  with  the  stationary  engineers,  one  to  five ;  with 
the  plumbers,  one  to  two ;  with  the  bakers,  one  to  three ;  with  the 
textile  workers,  one  to  twelve,  etc.     In  fact  there  seems  to  be  only 
one  important  trade  or  industry  in  Great  Britain  in  which  the  forces 
of  labor  are  completely  unified,  while  there  are  very  few  cases  indeed 
in  America  where  they  are  divided.    The  British  instance  is  that  of 
the  very  powerful  union  of  boilermakers.   The  only  American  trades 
or  industries  where  there  is  a  division  of  any  consequence  are  the 
machinists,  the  carpenters  and  the  painters.     In  each  of  these  cases 
the    larger    organization    is    many-fold    more    important    than    the 
smaller  and  will  undoubtedly  swallow  it  up  in  the  near  future.     In 
each  case  negotiations  to  this  end  are  now  in  progress. 

[730] 


British  aiid  American  Trade  Uniontsrn  119 

The  degree  of  division  and  subdivision  of  unions  in  British 
industry  at  times  reaches  a  point  that  is  most  amazing.  Especially 
is  this  the  case  in  the  metal  trades  where  a  great  deal  of  hand  work 
survives.  So  we  find  among  the  "principal  divisions"  of  the  metal 
trades  in  the  report  of  the  British  Board  of  Trade  some  dozen 
classes  of  trade  unions  with  more  than  one  hundred  sub-divisions. 
The  classes  are  cutlery,  file  makers,  silver  bloaters,  lock  and  hinge 
makers,  wire  workers,  lock  and  bolt  makers,  bedstead  workmen 
and  anvil  makers,  to  name  only  the  more  important.  In  the  first 
class  alone  there  are  in  Sheffield  half  a  dozen  large  unions  and  twice 
as  many  small  ones.  So  we  have  the  table  plate  forgers,  the  saw 
makers,  the  spring  knife  grinders,  the  spring  knife  cutters,  the 
Amalgamated  Edge  Ti  ol  Trade  Society,  and  the  table  and  butcher 
knife  hafters,  only  to  mention  the  more  important.  In  all  these 
trades  in  America  only  three  unions  are  of  importance — the  ma- 
chinists, the  metal  workers  and  the  metal  polishers,  all  on  a  na- 
tional scale.  There  is  a  somewhat  similar  situation  in  the  leather 
industry.  In  America  there  are  only  two  unions  of  any  consequence, 
the  Leather  Workers  and  the  Leather  Workers  on  Horses'  Hoofs. 
In  Great  Britain  there  are  a  large  number  of  organizations  divided 
in  half  a  dozen  classes  as  tanning,  currying,  dressing  and  finishing, 
saddlery  and  harness,  whips,  etc. 

As  a  consequence  of  the  more  narrow  policy  of  the  British 
unions  towards  unskilled  labor,  the  total  numerical  strength  in  pro- 
portion to  the  number  of  persons  employed  in  British  industry  is 
hardly  as  great  as  that  of  the  American  unions,  although  the  former 
have  the  advantage  of  at  least  a  generation  in  their  age.  The  total 
number  of  unionists  in  America  is  probably  not  much  short  of  2,500,- 
000;  those  of  Great  Britain  are  a  little  more  than  2,000,000.  But 
this  does  not  tell  half  the  story.  The  unions  of  the  United  States 
were  estimated  by  the  Industrial  Commission  to  have  had  approxi- 
mately 500,000  members  in  1892.  In  190 1  they  had  already  grown 
to  1,400,000.  The  unions  of  Great  Britain,  on  the  other  hand,  were 
three  times  as  strong  numerically  at  the  former  date,  having  a  mem- 
bership of  1,500,000.  In  1901  this  figure  had  risen  to  nearly  2,000,- 
000.  While  the  membership  of  American  unions  increased  nearly 
threefold  in  ten  years,  that  of  Great  Britain  increased  less  than  one- 
third.  During  the  last  year  the  tax  paying  membership  of  the 
American  Federation  of  Labor  rose  by  more  than  200,000  members, 

r73i] 


120  The  Annals  of  the  American  Academy 

while  that  of  other  organizations  outside  of  the  American  Federa- 
tion of  Labor  increased  even  more  rapidly,  so  that  the  total  increase 
during  this  rather  bad  year  was  perhaps  something  like  a  quarter  of 
a  million,  according  to  the  union  showing.  On  the  other  hand,  the 
membership  of  the  British  unions  has  for  several  years  almost  stood 
still.  In  fact  the  official  reports  of  the  Board  of  Trade  show  a 
slight  decrease  from  1901  to  1902.  Moreover,  besides  an  increase 
of  the  membership  of  American  unions  in  the  most  important  indus- 
tries up  to  or  beyond  the  British  level,  with  a  few  important  excep- 
tions this  increase  of  membership  has  meant  the  organization  of 
trades  neglected  almost  entirely  on  the  other  side.  While  there  are 
45,000  clothing  workers  on  men's  garments  organized  in  the  United 
States,  there  were  in  the  last  report  scarcely  one-tenth  as  many  in 
Great  Britain.  While  in  the  hotels  and  restaurants,  in  the  breweries 
and  on  the  street  railways,  where  American  unions  have  secured 
from  30,000  to  50,000  members  in  each  case  respectively,  there  are 
in  Great  Britain  only  a  few  hundred  union  men. 

Perhaps  the  attitude  of  the  two  movements  towards  unskilled 
labor  is  nowhere  more  clearly  shown  than  in  their  relative  success 
in  organizing  women.  There  are  no  accurate  figures  concerning  the 
movement  in  the  United  States.  But  it  can  safely  be  estimated  that 
more  than  100,000  women  are  organized  in  this  country.  The  fig- 
ures for  Great  Britain  are  somewhat  similar.  There,  in  1901,  there 
were  120,000  women  in  the  unions.  But  of  these  nearly  108,000 
were  in  the  textile  industry  alone  which  employs  considerably  less 
than  half  of  the  million  women  at  work  in  factories.  In  this  indus- 
try men  and  women  both  are  very  much  better  organized  than  in 
the  United  States,  though  it  may  be  said  in  passing  that  the  women 
are  practically  forced  into  the  organization,  as  is  also  the  case  in 
many  American  unions. 

Outside  of  the  textile  industry  a  most  interesting  situation  devel- 
ops. The  total  number  of  women  organized  in  this  field  was,  in  1901, 
12,151.  The  total  number  employed  in  the  same  field  even  two  or 
three  years  before  this  was  shown  by  the  factory  reports  to  be  619.- 
014,  that  is  to  say,  the  organization  of  women  outside  of  the  textile 
industry  is  almost  insignificant.  It  is  of  interest  to  enter  a  little 
more  closely  into  the  classification  of  the  12,000  women  who  are 
organized.  Of  these,  some  2,500  are  in  the  hat  and  cap  industry, 
which  is  pretty  well  unionized.     Two  thousand  two  hundred  are  in 

[732] 


British  and  American  Trade  Unionism  121 

tobacco  and  1,100  in  potteries,  which  is  a  fair  showing  for  these 
relatively  small  industries ;  that  is  to  say,  half  of  this  small  number 
of  12,000  employees  are  engaged  in  three  industries,  leaving  a  little 
more  than  6,000  union  women  for  industries  and  trades  employing 
half  a  million.  In  Chicago  alone,  persons  familiar  with  the  union 
situation,  estimate  there  are  15,000  union  women  at  the  present 
moment  after  considerable  losses  caused  by  the  reaction  in  industry 
last  summer  and  fall. 

To  sum  up  the  relative  numerical  strength  of  the  British  union 
movement  and  its  failure  with  a  few  exceptions  to  organize  the 
unskilled,  the  following  table  will  be  useful.  If  in  this  connection 
it  is  remembered  that  the  growth  of  the  British  unions  has  almost 
come  to  a  standstill  in  recent  years,  the  table  will  speak  for  itself. 

Union  Membership  in  British  Industry. 

Industry.  Total  No.  Employed     Total  No.  in 

(1898)  Unions  (1901) 

Mining   824,791   (1901)  505,023 

Metals,  etc i,325>975  334,913 

Textiles    763.384  219,256 

Clothing     351,622  66,291 

(In  the  textile  industry  young  persons  and  children  under  eighteen  have 
been  deducted  from  the  total.  In  the  metal  and  clothing  trades,  they  are 
included.) 

It  is  impossible  to  prepare  a  similar  table  with  any  pretence  of 
accuracy  for  the  United  States,  but  the  situation  can  be  summed  up 
in  a  general  way  in  each  of  the  same  industrial  divisions.  In  mining 
the  proportion  organized  in  the  United  States  is  very  similar  to  that 
in  Great  Britain,  or  if  anything,  slightly  better,  the  total  number 
in  our  unions  reaching  more  than  300,000  out  of  a  total  of  some 
500,000  in  the  industry.  In  the  metal  trades  the  degree  of  organiza- 
tion in  Great  Britain  is  slightly  better  than  in  the  United  States. 

The  Union  Membership  in  the  Metal  Tr.^des  of  the  United  St.\tes. 

Machinists     72,300 

Iron  moulders   30,000 

Boiler  makers,  ship  builders,  etc 22,400 

Sheet  metal  workers  16,300 

Iron,  sheet  and  tin  workers 13,500 

Blacksmiths     10,500 

Metal  workers    12,800 

177,800 
^733] 


122  The  Annals  of  the  American  Academy 

In  1900  the  total  number  of  persons  in  these  industries  was  more 
than  900,000.  The  organization  in  the  metal  trades  is  therefore 
somewhat  better  in  Great  Britain  than  in  the  United  States.  In  the ' 
textiles,  of  course,  the  difference  in  favor  of  the  British  organiza- 
tions is  striking.  Out  of  five  or  six  hundred  thousand  persons  em- 
ployed (the  Census  of  Occupations  does  not  indicate  the  exact  fig- 
ures), the  textile  workers  union  here  had  last  year  a  little  over  10,000 
members.  In  the  clothing  industry  the  situation  is  reversed.  The 
American  organizations,  of  which  the  principal  are  the  garment 
workers,  the  boot  and  shoe  workers,  the  shirt  makers  and  the  hatters, 
have  nearly  100,000  members  of  the  several  hundred  thousand  in  this 
industry.  As  indicated  by  the  above  figures,  the  proportion  organ- 
ized is  scarcely  half  as  great  in  Great  Britain.  The  only  important 
field  besides  those  above  mentioned,  where  Great  Britain  has  an 
advantage,  is  in  unclassified  general  labor.  Here  the  gas  workers' 
union  had  in  1901  some  45,000  members  and  other  unions  brought 
the  total  to  115,000.  In  all  other  industries  a  comparison  is  with- 
out exception  in  favor  of  the  United  States. 

To  sum  up  in  a  word,  the  British  unions  are  on  the  whole  as 
important  a  factor  in  British  industry  as  the  American  unions  are 
in  the  United  States,  but  in  Great  Britain,  with  the  exception  of  the 
textile  industry  and  the  general  laborers,  it  is  almost  exclusively  the 
skilled  that  are  organized,  whereas  in  the  United  States  a  very  large 
majority  of  the  total  number  of  unionists  are  engaged  at  relatively 
unskilled  work.  In  Great  Britain  the  movement  is  divided  both  in 
the  country  at  large  and  within  the  trades.  In  America  the  unity 
within  the  trades  and  industries  is  almost  complete  and  a  national 
unity  seems  to  be  not  far  distant,  while  already  three-fourths  of  the 
unions  are  affiliated  with  the  great  national  organization,  the  Ameri- 
can Federation  of  Labor.  Finally,  the  unions  of  the  United  States 
are  growing  with  a  startling  rapidity  and  the  growth  does  not  seem 
to  be  a  mushroom  growth. 

But  if  the  American  labor  organizations  are  more  democratic 
in  their  membership  and  more  united  in  their  organization  than 
those  of  Great  Britain,  are  not  the  latter  richer  and  therefore  better 
able  to  hold  themselves  together  in  adversity  or  better  provided  with 
the  sinews  of  war?  Are  they  not  more  solid,  more  practical,  more 
successful — as  measured  by  financial  gains  made  for  themselves  or 
their  members? 

[734] 


British  and  American  Trade  Unioiiism  12^ 


0 


The  linancial  resources  of  the  British  unions  are  considerably 
greater  than  those  of  the  United  States  and  moreover  are  increasing 
rapidly.  The  total  funds  of  the  one  hundred  principal  British 
unions  in  1892  were  £1,573,944,  in  1902  they  were  £4,372,178,  a  total 
increase  of  nearly  threefold,  and  a  per  capita  increase  of  more  than 
100  per  cent.  The  income  during  the  same  period  increased  from 
£1,462,386  to  £2,067,666,  remaining  near  35s.  or  alxuit  v$8.5o  per 
capita. 

But  what  are  these  vast  funds  of  the  British  unions?  Do  they 
constitute  a  war-chest,  like  Russia's  famous  hoard  of  gold?  Can 
they  all  be  used  as  a  fund  for  obtaining  more  wages  and  shorter 
hours?  By  no  means.  As  far  as  the  union  rules  and  legal  regula- 
tions are  concerned,  yes,  but  from  the  standpoint  of  dollars  and 
cents,  no.  The  trade  unions  of  Great  Britain,  and  to  a  lesser  extent 
those  of  America,  lead  a  double  life.  They  are  labor  organizations  in 
the  first  instance,  but  they  are  also  insurance  companies  in  their  prin- 
cipal functions,  very  similar  to  many  mutual  benefit  societies  and 
the  industrial  insurance  companies  of  the  United  States.  The  funds 
though  convertible  to  trade  union  uses,  both  by  the  union  rule  and 
legal  right,  are  for  the  most  part  morally  and  practically  pledged 
to  be  paid  out  in  benefits. 

For  the  ten  years  from  1892  to  1901  inclusive,  the  amounts 
paid  by  the  British  unions  in  death,  sickness,  unemployed  and  other 
benefits  averaged  60.8  per  cent,  of  the  total  expenditures,  while  the 
proportion  expended  on  "disputes"  or  strikes  averaged  less  than 
one-third  as  much  or  19.4  per  cent.,  the  remainder  going  to  work- 
ing and  miscellaneous  expenses.  The  proportion  varied  greatly,  of 
course.  In  1893  the  coal  strike  brought  the  "dispute  pay"  to  nearly 
one-third  the  total  expended  and  in  the  great  "engineering  dispute" 
it  even  reached  33.5  per  cent.  On  the  other  hand,  only  12.3  per  cent. 
was  expended  on  dispute  pay  in  1901,  10.2  in  1900  and  9.4  in  1899. 
In  recent  years  while  about  one-tenth  of  the  union  income  was  going 
directly  into  the  labor  conflict,  nearly  two-thirds  (64.8,  65.4  and 
65.2  per  cent.)  was  going  for  insurance  features.  And  this  was  not 
too  much,  for  the  risks  carried  by  the  British  unions  steadily  grow 
worse  as  their  average  membership  grows  older  and  their  liabilities 
steadily  increase. 

The  contrast  with  the  American  unions  is  striking.  While  death 
benefits  are  as  prevalent  here  as  there,  all  other  forms  of  benefits  are 

[735] 


124  The  Annals  of  the  American  Academy 

less  general.  Three-fourths  of  the  British  unions  have  sick,  accident 
and  out  of  work  benefits.  Only  one-third  of  the  unions  of  the 
American  Federation  of  Labor  have  sick  or  accident  benefits  on  a 
national  scale  and  only  one-fourth  have  out-of-work  or  travelling 
benefits.  Over  a  fourth  of  the  British  unions  have  old  age  benefits, 
practically  none  in  the  United  States.  The  amounts  paid  by  the 
unions  of  the  American  Federation  of  Labor  are  shown  in  the  fol- 
lowing table.  The  important  unions  outside  the  federation  are  those 
of  the  railways  and  the  metalliferous  mines,  the  bricklayers,  the 
masons,  the  stonecutters  and  the  plasterers,  with  a  total  member- 
ship of  less  than  half  a  million  men. 

Benefits. 

Labor  Unions  of  the  American  Trade  Unions  of 

Federation  of  Labor.  Great  Britain. 

Funeral    $825,687  $494,075 

Sickness  and  accidents  756,762  1,724,170 

Unemployed,  etc I5i,5i5  1,629,330 

Superannuation     1,014,760 

$1733,964  $4,862,335 

If  the  unions  outside  the  federation  are  added,  the  result  would 
be  materially  changed.  The  Order  of  Railway  Conductors,  perhaps 
the  smallest  of  the  four  big  railway  unions,  paid  last  year  $835,500 
more  than  all  the  unions  of  the  federation  expended  on  death  bene- 
fits. The  four  big  railway  unions  alone  have  expended  about  twice 
the  total  amount  recorded  by  the  American  Federation  of  Labor 
unions.  But  they  are  in  every  way  exceptional  and  more  like  the 
British  organizations. 

Not  only  are  the  railway  unions  exceptional  as  to  their  benefit 
policy,  but  so  also  are  several  unions  within  the  Federation — espe- 
cially the  cigarmakers  and  the  iron  moulders.  If  we  subtract  the 
amounts  they  paid,  $379,000  and  $260,093,  respectively,  from  the  total 
above  mentioned  for  the  American  Federation  of  Labor,  it  is  reduced 
by  fully  one-third — from.  $1,733,964  to  $1,093,871.  But  the  member- 
ship of  the  Cigarmakers  Union  was  only  40,500,  that  of  the  Mould- 
ers 30,000,  both  of  them  together  less  than  one-twentieth  of  that 
of  the  federation.  The  membership  of  the  four  largest  railway 
unions,  trainmen,  firemen,  engineers  and  conductors  is  about  200,000. 
If  we  add  to  the  unions  just  mentioned  all  others  that  have  import- 

[736] 


British  and  American  Trade  Unionism  125 

ant  benefit  features,  the  plumbers,  the  barbers,  the  glass  workers, 
the  boot  and  shoe  workers,  and  all  those  that  are  expending  more 
than  $2.00  per  capita  on  benefits,  we  find  that  probably  less  than  half 
a  million  of  the  two  and  a  half  million  members  of  the  trade  unions 
in  the  United  States  are  members  of  organizations  that  have  estab- 
lished such  a  benefit  on  a  national  scale.  In  Great  Britain  all  the 
great  classes  of  the  unions  are  paying  $2.00  or  more  per  capita. 
All  the  unions  except  those  of  general  labor  and  transport  and  those 
of  the  mining  and  textile  industries  are  paying  benefits  of  from 
$4.00  to  nearly  $8.00  per  capita. 

The  prevailing  custom  of  the  American  unions  toward  benefits 
is  then  to  leave  them  to  the  local  unions  or  to  ignore  them  entirely. 
In  either  case  the  absence  of  a  large  national  treasury  does  not 
necessarily  indicate  that  the  workmen  do  not  secure  benefits.  They 
may  secure  them  from  the  industrial  insurance  companies,  so  rapidly 
developing  in  the  United  States,  or  from  their  local  unions.  What  it 
does  indicate  is  that  the  workingmen's  insurance  and  their  organiza- 
tion for  the  economic  power  and  advancement  have  become  two 
fairly  separate  and  distinct  functions  in  the  United  States. 

The  benefit  feature  is  better  adapted  to  British  "trade"  union- 
ism than  to  the  labor  unionism  of  the  United  States.  In  the  form 
of  payment  and  character  of  the  benefit,  each  "trade"  union  of 
course  varies,  adapting  itself  to  the  needs  of  its  members.  Once 
instituted,  the  benefit  therefore  becomes  a  retarding  force.  But  the 
changing  conditions  of  industry  require  new  classes  of  members  to 
enforce  a  successful  industrial  policy.  The  specialized  benefits  check 
the  accession  of  these  new  members  and  so  keep  the  trades  apart. 
The  large  benefit  funds  being  convertible  to  immediate  use  in  the 
form  of  employment  or  dispute  pay,  form  a  vested  interest  of  the 
older  members  that  urges  them  to  keep  out  the  new.  Many  members 
are  not  unionists  at  all  at  heart,  but  mere  policy  holders  of  "trade" 
insurance. 

But  above  all,  the  benefits  do  not  compose  a  defense  (or  aggres- 
sion) fund.  Instead  of  aiding  in  the  conduct  of  strikes  they  hinder 
their  declaration  except  in  those  extreme  cases  where  a  man  is  will- 
ing not  only  to  sacrifice  himself  and  his  family  in  the  present  for  the 
cause,  but  also  to  give  up  his  long  hoarded  protection  against  sick- 
ness, accident,  unemployment  and  old  age  in  the  future,  and  finally 
to  sacrifice  to  a  certain  degree  his  wife  and  children  after  he  is  dead. 

[737] 


126  The  Annals  of  the  American  Academy 

As  a  consequence  the  American  unions  are  spending  twice  as  much 
per  capita  on  strikes,  to  say  nothing  of  the  much  greater  sums  drawn 
by  individual  workmen  in  this  country  from  their  savings  in  times 
of  strikes.  The  sum  lost  in  wages  in  strikes  averaged  sixteen  times 
as  much  as  that  spent  by  the  unions  during  the  same  conflicts  during 
the  last  census  decade.    " 

For  the  decade  from  1892  to  1901  the  British  unions  spent 
an  average  of  £919,901  per  annum  on  benefits  and  only  £293,552 
on  strikes.  For  the  decade  from  1891  to  1900  inclusive,  the  Ameri- 
can unions  expended  an  average  of  $831,833  per  annum  on  strikes, 
while  their  average  membership  in  this  period  was  less  than  half  as 
great.  Lately  this  expenditure  has  increased  rapidly.  In  1900  it 
w-as  $1,434,452,  while  for  Great  Britain  it  was  for  the  one  hundred 
principal  unions  £150,283.  But  in  1902  the  unions  of  the  American 
Federation  of  Labor  alone  spent  $2,729,604  on  strikes,  in  1903, 
$2,932,417,  and  in  1904,  $2,864,642.  If  we  add  to  these  sums  those 
expended  by  the  bricklayers,  the  plasterers,  the  stonecutters  and  the 
Western  Federation  of  Miners,  we  may  have  half  a  million  or  a 
million  more  for  each  of  these  years.  The  sum  expended  by  the 
hundred  principal  unions  of  Great  Britain  in  1893,  the  year  of  the 
coal  strike,  was  £588,373 ;  in  1897,  the  year  of  the  engineering  strike, 
£633,379.  The  American  unions  are  then  expending  steadily  on 
strikes  a  larger  amount  than  that  paid  out  in  Great  Britain  in  the 
largest  strike  of  its  history. 

Eight  years  have  elapsed  since  the  great  engineering  dispute  in 
1897,  and  since  that  time  there  has  been  no  great  national  contest  in 
the  United  Kingdom.  The  amount  expended  by  the  unions  on 
attack  or  defense  has  fallen  to  a  bare  million  dollars  a  year,  less  than 
a  third  of  that  expended  in  the  United  States.  The  funds  have  gone 
on  accumulating.  The  amount  per  capita  doubled  from  1892  to 
1 90 1,  but  it  is  still  the  trifling  sum  of  71s.  8d.  per  capita,  scarcely 
$18.00,  a  sum  hardly  sufficient  to  cover  the  liabilities  of  the  unions 
as  insurance  institutions,  to  say  nothing  of  their  availability  to  carry 
on  great  labor  conflicts. 

During  the  decade  for  which  we  have  figures  (1891-1900),  the 
one  hundred  principal  unions  of  Great  Britain  expended  an  average 
annual  amount  on  dispute  pay  of  £293,475.  As  the  average  member- 
ship was  over  a  million,  the  amount  paid  for  strike  was  hardly  6s. 
or  $1.50  per  member  per  year.     For  three  years  the  unions  of  the 

[738]. 


British  and  American  Trade  Unionism  127 

Federation  of  Labor,  composed  in  considerable  part  of  unskilled 
and  women  workers,  have  averaged  half  as  much  again. 

As  organizations  for  collective  bargaining  the  British  unions 
are  not  expending  more,  but  less  for  each  member  than  those  of  the 
United  States.  And  while  the  years  1893  and  1897  saw  the  high  water 
mark  of  the  expenditure  of  British  unions  on  strikes,  the  years  1902, 
1903  and  1904,  during  which  the  membership  of  the  Britsh  unions 
has  stood  still  and  their  strike  expenditure  fallen  as  measured  by  the 
previous  decade,  have  witnessed  not  only  a  rapidly  growing  mem- 
bership of  the  unions  of  the  United  States,  but  an  increasing  expend- 
iture for  each  member  of  the  industrial  conflict. 

As  measured  either  by  membership  or  by  financial  power,  the 
trade  unions  of  Great  Britain,  as  organizations  bettering  the  eco- 
nomic condition  of  the  working  class  or  increasing  its  power  in  the 
industrial  world,  seem  already  inferior  to  those  of  the  United  States. 
Manifestly  under  these  conditions  the  American  unions  are  not 
going  to  follow  in  the  footsteps  of  their  predecessors,  but  will  de- 
velop as  they  are  developing  a  form  of  organization,  a  method  of 
fighting  employers,  a  policy  toward  the  public  and  an  ultimate  goal 
of  their  own.  They  have  passed  out  of  the  stage  where  they  must 
look  to  the  rest  of  the  world  for  precedents  and  the  time  is  coming 
when  the  rest  of  the  world  must  rather  look  to  them. 


COMMUNICATIONS 


A  SUGGESTION   FOR  THE   PREVENTION  OF  STRIKES 
By  a.  Maurice  Low,  Washington,  D.  C. 

Is  an  employer  justified  in  locking  out  his  men?  Is  an  employee  justi- 
fied in  striking?  To  these  questions  there  can  be  only  one  answ/er.  In  this 
enlightened  age,  in  this  age  when  the  relations  of  the  individual  to  society 
and  of  society  to  the  individual  are  so  interwoven  that  they  cannot  be 
dissociated,  the  resort  to  brute  force  is  as  much  an  anachronism  as  would  be 
the  resort  to  a  trial  by  combat.  Society  can  only  justify  a  strike  as  it  justifies 
a  revolution.  It  is  the  last  resource  when  all  other  means  fail.  It  is  the  last 
resource  when  conditions  are  so  intolerable  that  the  only  relief  is  the  remedy 
of  the  sword.  History  has  put  the  stamp  of  iti  approval  on  a  few,  a  very 
few,  revolutions. 

I  advance  the  following  as  the  rough  outline  for  the  prevention  of  dis- 
putes between  capital  and  labor. 

Every  employer  of  labor  employing  more  than  say  ten  employees  must, 
before  engaging  in  business,  obtain  from  the  state  a  license,  the  terms  of 
which  are :  That  he  will  not  reduce  the  prevailing  rate  of  wages  or  increase 
the  hours  of  labor  until  after  he  has  served  notice  of  his  intention  upon  his 
employees  and  a  majority  have  accepted  the  change.  In  case  a  majority 
refuse  to  accept,  the  question  is  reported  to  the  licensing  authority,  matters 
in  the  meantime  remaining  in  statu  quo.  It  shall  be  the  duty  of  the  licensing 
authority  to  ascertain  all  the  facts  touching  the  nature  of  the  employment,  the 
conduct  of  the  business,  its  profits,  the  cost  of  living,  and  all  other  pertinent 
facts,  and  if  the  employer  is  sustained  he  may  make  the  change  as  proposed. 
If  the  decision  of  the  licensing  authority  is  adverse  no  change  may  be  made, 
nor  may  another  proposition  of  the  same  character  be  made  within  a  period 
of  three  months.  A  violation  of  this  clause  is  punished  by  fine  and  imprison- 
ment. An  employer  may  at  any  time  retire  from  business,  but  in  that  case, 
and  to  prevent  his  making  the  law  a  dead  letter,  he  may  not  after  retiring 
from  business  engage  in  the  same  business,  either  as  principal  or  agent,  within 
a  period  of  six*  months. 

An  employee  may  not  refuse  to  continue  to  work  for  an  employer  in 
whose  employment  he  then  is,  and  whose  salary  is  regularly  paid  to  him, 
and  whose  hours  of  labor  and  conditions  of  employment  are  not  in  contra- 
vention of  any  federal,  state  or  municipal  law,  for  any  or  all  of  the  follow- 
ing reasons :  Because  an  increase  of  pay  is  denied  him,  or  because  a  reduc- 
tion of  hours  is  not  granted  to  him,  or  because  of  the  employment  of  some 
other    person,    or   because   of    a   regulation    made   by   his    employer.      If   an 

[740] 


Commu  n  icatio  ns  129 

employee  desires  to  leave  his  employment  because  of  any  or  all  of  the  fore- 
going reasons  he  must  serve  notice  upon  his  employer,  and  if  the  employer 
refuses  to  accept  his  demand  he  notifies  the  licensing  authority,  matters  be- 
tween them  in  the  meantime  remaining  in  statu  quo.  It  is  the  duty  of  the 
licensing  authority  to  investigate  all  the  matters  touching  the  dispute  and  to 
render  his  decision  on  just  and  equitable  grounds,  due  regard  being  had  by 
him  as  to  the  prevailing  rates  of  wages  and  hours  in  employment  of  like 
character  in  the  vicinity,  the  cost  of  living,  the  profits  accruing  to  the  manu- 
facturer, the  customs  of  the  trade  or  craft  and  all  other  circumstances.  If 
the  decision  is  adverse  to  the  men  they  shall  remain  at  work  under  the  con- 
ditions then  prevailing  and  may  not  make  another  similar  application  for  a 
period  of  three  months.  If  at  the  end  of  that  period  they  shall  renew  their 
application,  which  shall  again  be  rejected,  they  may  leave  their  employment 
without  further  liability.  Failure  to  obey  the  decision  of  the  licensing  author- 
ity subjects  the  men  to  fine  and  punishment.  If  the  application  of  the  men  is 
sustained  by-  the  licensing  authority,  either  in  whole  or  in  part,  he  shall  serve 
notice  to  that  effect  on  the  employer,  who  shall  at  once  comply  with  the 
award.     Failure  on  his  part  subjects  him  to  fine  and  imprisonment. 

The  advantages  which  this  system  would  have  I  shall  suggest  later.  T 
prefer  in  the  first  place  to  meet  the  objections  which  I  see  will  be  raised. 

It  wull  be  doubtless  urged  that  it  is  proposed  to  abolish  the  right  of  free- 
dom of  contract,  which  is  a  thing  held  sacred  by  all  liberty  loving  people. 
That  is  precisely  what  I  do  propose.  I  would  abolish  the  so-called  right 
which  enables  a  man  to  oppress  his  employees,  or  an  employer  to  be  at  the 
mercy  of  an  undisciplined  set  of  men,  in  the  same  way  that  society  long 
years  ago  abolished  the  right  that  a  man  once  possessed  to  kill  the  man  whose 
gibe  had  ofifended  him.  For  brutality  and  anarchy  and  oppression  we  sub- 
stitute the  simple  and  beautiful  process  of  the  law.  It  is  of  course  a  radical 
departure.  Not  more  radical,  however,  than  the  laAv  of  Valerius  which  gave 
to  the  Roman  plebeian  the  right  to  appeal  from  the  magistrate  to  the  people. 
Still  less  radical  than  the  edict  of  Constantine  abolishing  crucifixion  as  a 
punishment.     Whatever  is  new  is  always  radical,  while  it  is  new. 

It  will  perhaps  be  urged  that  the  employee  instead  of  being  benefitted 
by  the  proposed  law  would  in  the  last  analysis  find  himself  worse  off  than 
before,  inasmuch  as  if  he  attempted  to  secure  an  advance  of  wages  and  the 
decision  was  adverse  he  would  be  compelled  to  labor  at  the  prevailing  rate 
for  the  next  three  months ;  and  if  the  licensing  authority  was  incompetent  or 
corrupt  the  decision  would  always  be  against  him.  If  his  demand  is  unjust, 
if  the  employee  asks  for  higher  wages  than  the  employer  is  justified  in  paying, 
it  is  perfectly  proper  that  the  demand  should  not  be  granted.  Employers  as 
well  as  employees  must  for  their  own  protection  be  very  sure  that  the  licens- 
ing authority  is  neither  corrupt  nor  inefficient.  It  lies  in  their  own  hands  to 
secure  the  appointment  of  honest  and  competent  servants.  If  they  prefer  to 
be  badly  served  rather  than  well  served,  they  must  not  complain  if  the  results 
are  unsatisfactory. 

Admitting,  for  the  sake  of  argument,  that  the  method  proposed  is  sound, 
it  will  be  urged  that  it  is  impracticable  because  it  would  entail  more  work 

[741] 


130  The  Annals  of  the  American  Academy 

than  could  be  properly  performed  by  one  man,  who  would  find  it  impossible 
to  keep  himself  informed  as  to  the  prevailing  rates  of  wages  paid  in  all  the 
industries  in  a  state,  or  to  be  able  to  ascertain  whether  a  demand  for  a 
change  of  wages  was  justified  by  the  circumstances. 

This  objection  is  not  so  formidable,  when  carefully  examined,  as  appears 
on  its  face.  A  properly  constituted  bureau  would  have  a  compilation  of  the 
wages  and  other  conditions  -governing  employment  in  every  branch  of  labor, 
those  compilations  being  revised  from  time  to  time  as  might  be  found  neces- 
sary by  improvements  in  machinery  and  any  other  circumstances  affecting 
that  particular  industry.  The  bureau  would  also,  and  without  much  difficulty, 
be  able  to  keep  itself  informed  as  to  the  cost  of  raw  materials,  the  wholesale 
and  retail  prices  of  the  finished  product,  the  general  state  of  the  market  and 
the  cost  of  living.  Such  investigations  are  now  periodically  made  by  the 
United  States  Bureau  of  Labor  and  many  of  the  Bureaus  of  Labor  of  the 
various  states.  As  a  matter  of  fact,  the  bureaus  that  would  be  created  by  the 
passage  of  a  law  such  as  I  propose  would  be  able  quickly,  scientifically,  accu- 
rately and  impartially,  to  arrive  at  all  the  facts  affecting  a  labor  dispute,  facts 
which  state  boards  of  arbitration  and  conciliation  as  now  constituted,  arbitra- 
tors in  general,  newspapers  and  the  public  cannot  reach  because  they  have 
not  the  machinery  with  which  to  conduct  their  investigation,  nor  the  oppor- 
tunity to  pursue  an  investigation  which  ramifies  so  extensively,  and  in  which 
so  many  elements  must  be  weighed  with  such  exactness  if  a  definite  result  is 
to  be  reached,  and  not  a  mere  hasty  generalization  pronounced. 

It  will  also  be  urged  that  the  law  would  work  great  injustice  to  the  small 
employer,  as  he  might  be  forced  to  pay  an  increase  of  wages  or  else  be  driven 
out  of  business. 

This  would  be  an  injury  to  the  individual,  but  not  to  society.  The  man 
who  because  of  his  lack  of  capital,  or  his  lack  of  ability,  or  his  lack  of  thrift, 
who,  in  short,  is  unfitted  to  be  an  employer,  has  no  right  to  degrade  other 
men,  and  thereby  degrade  society,  by  making  those  men  compensate  for  his 
deficiencies  by  a  forced  levy  on  their  brains  or  their  muscles.  That  is  what 
an  emploj'er  does  whose  only  way  to  keep  his  head  above  water  is  to  pay 
his  men  less  than  a  prevailing  wage,  or  by  exacting  of  them  a  greater  stint, 
or  by  making  them  work  in  dangerous  or  unsanitary  surroundings.  The 
world  has  no  use  for  the  inefficient,  the  incompetent,  the  unfit. 

Doubtless  it  will  be  said  that  conceding  the  proposed  law  to  be  a  solution 
for  admitted  evils  it  is  merely  a  theoretical  solution  because  incapable  of 
being  put  into  practical  operation.  It  might  be  easy,  it  will  be  argued,  to 
arrest  a  single  employer  or  a  handful  of  employees  who  chose  to  disregard 
the  mandate  of  the  proper  authority,  but  what  would  happen  in  the  case  of  a 
hundred  thousand  miners  determined  to  strike;  in  the  event  that  the  em- 
ployees of  a  great  railroad  system  ignored  the  decision  of  the  licensing  author- 
ity? 

The  answer  to  that  is  what  the  answer  of  society  has  always  been  to 
every  objection  to  a  law:  a  law  is  valuable  or  worthless  precisely  as  it  is  the 
concrete  expression  of  a  moral  sense  of  the  community.  Any  law,  no  matter 
how  benign  and  beneficial,  will  fail  of  its  purpose  and  fall  into  disrepute  that 

[742] 


Communications  131 

voices  the  sentiments  of  a  faction  merely  and  not  the  great  majority  of  a 
community.  Any  law,  no  matter  how  harsh  or  injurious,  will  be  observed 
if  the  majority  believe  that  its  observance  is  for  the  good  of  society  as  a 
whole.  Law  never  precedes  the  evil  that  it  is  designed  to  cure,  nor  is  law 
ever  enacted  in  advance  of  that  evil.  First  a  thing  is  done,  a  thing  that 
society  regards  as  injurious.  Then  society  proceeds  to  correct  the  evil  by  its 
prohibition,  the  disregard  of  which  meets  with  punishment.  In  a  word,  all 
law  in  this  enlightened  age  rests  on  the  consent  of  the  governed. 

If  the  world  twenty-five  centuries  after  the  writing  of  the  twelve  tables, 
"which  next  to  the  Christian  religion  is  the  most  plentiful  source  of  the  rules 
governing  actual  conduct  throughout  Western  Europe."  in  the  words  of  Sir 
Henry  Maine,  is  content  to  countenance  the  same  rules  of  brute  force  and 
the  same  appeal  to  passion  that  governed  the  relations  of  men  before  there 
was  even  an  attempt  to  form  a  rudimentary  code  and  recognize  the  principles 
of  law,  nothing  more  can  be  said  on  the  subject.  The  last  word  has  been 
spoken. 

No  one  need  fear  that  the  majority  of  the  male  inhabitants  of  a  state 
will  be  placed  in  jail  because  they  have  elected  to  defy  the  law.  No  one 
need  fear  that  additional  jails  will  have  to  be  built  in  every  state.  Men 
will  obey  the  law  because  it  represents  public  sentiment.  A  great  rhetorician 
once  said  that  you  cannot  indict  a  nation,  and  because  there  was  a  certain 
ring  to  the  words  they  have  been  admiringly  repeated  by  the  unthinking, 
which  is  what  the  unthinking  always  do  when  words  tickle  their  ears.  Truth 
is,  not  only  that  you  can  indict  a  nation  but  more  than  once  in  the  history  of 
the  world  nations  have  been  brought  to  plead  at  the  great  bar  of  public 
opinion.  An  entire  community  cannot  be  put  in  jail,  nor  will  anyone  attempt 
it,  because  there  will  be  no  necessity  for  it.  One  thing  that  distinguishes 
the  Anglo-Saxon  from  any  other  race  is  its  submission  to  the  law.  The  law 
will  be  respected. 

And,  finally,  we  shall  be  told  that  the  proposed  law  is  unconstitutional,  a 
word  to  terrify  the  timorous.  Constitutionality,  like  patriotism,  is  frequently 
the  refuge  of  the  base  and  the  cowardly.  Entrenched  behind  the  bulwark 
of  constitutionality,  designing  men  frighten  the  pusillanimous  by  declaring 
the  constitution  a  thing  too  sacred  to  be  touched,  and  by  perverting  the 
spirit  of  the  constitution  to  their  own  selfish  ends.  If  the  suggestion  herein 
made  is  unconstitutional  then  nearly  every  state  in  the  Union  has  violated 
the  constitution.  If  a  law  such  as  is  proposed  is  unconstitutional,  then  the 
law  of  Massachusetts  limiting  the  hours  of  labor  in  cotton  mills  is  uncon- 
stitutional ;  then  the  law  of  Congress  limiting  the  hours  of  labor  on  gov- 
ernment work  is  unconstitutional,  and  examples  can  be  multiplied  a  hun- 
dredfold. If  it  is  unconstitutional  to  regulate  conditions  of  labor,  which 
is  for  the  welfare  of  society,  how  much  greater  must  be  the  unconstitu- 
tionality of  the  law  which  prohibits  a  man  from  working  more  than  a 
certain  number  of  hours  a  week,  no  matter  how  anxious  he  may  be  to 
exceed  that  limit.  Clearly,  in  view  of  a  long  line  of  court  decisions  and  the 
trend  of  modern  society,  the  plea  of  imconstitutionality  cannot  be  seriously 
entertained. 

[743] 


132  The  Annals  of  the  American  Academy 

If  a  constitution  stands  in  the  waj-  of  progress,  the  constitution  must 
be  modified  to  suit  the  new  conditions.  Society  does  not  exist  for  the  benefit 
of  constitutions.  Constitutions  are  created  for  the  benefit  of  society.  A  con- 
stitution, like  any  other  law,  v/ill  endure  so  long  as  it  proves  valuable  and 
performs  the  functions  for  which  it  is  provided.  When  it  becomes  obsolete 
or  unsatisfactory  because  society  has  outgrown  it — and  societj'  outgrows  its 
laws  exactly  as  a  community  outgrows  its  buildings  and  its  transportation 
facilities — or  it  can  be  superseded  by  something  better,  that  something  better, 
in  a  progressive  society,  is  found.  No  society,  unless  it  has  reached  the 
limit  of  its  intellectual,  physical,  material  and  moral  development,  is  ever 
satisfied  to  regard  any  work  of  man  as  a  finality.  Progress  is  constant  and 
continued  evolution ;  constant  and  continued  dissatisfaction  with  existing 
conditions  because  of  a  desire  to  better  them;  constant  and  continued  change. 
Neither  constitution,  nor  law,  nor  custom,  nor  convention  is  sacred.  When- 
ever man  makes  of  his  works  a  fetich ;  whenever  he  creates  an  idol  of  the 
child  of  his  brain ;  whenever  out  of  his  own  conceit  he  sets  up  a  graven 
image  and  proclaims  it  as  a  thing  sacrosanct,  as  a  thing  consecrated  and 
therefore  not  to  be  desecrated  by  profane  hands,  he  is  either  uncivilized 
or  only  semi-civilized,  or  else  he  is  lapsing  into  barbarism. 

The  advantages  in  favor  of  substituting  law  for  brute  force  in  dealing 
with  labor  disputes  are  so  obvious  that  they  can  be  briefly  stated. 

The  main  argument,  the  sole  argument,  in  fact,  on  which  the  proposi- 
tion rests,  is  that  law  is  to  do  what  violence  cannot  do,  that  reason  is  to  take 
the  place  of  passion,  that  justice  is  to  rob  anarchy  of  its  terrors,  that  equity 
is  to  banish  chicanery.  The  sacred  duty  of  the  law,  the  agent  of  society  and 
civilization,  is  to  guard  the  weak  from  the  oppression  of  the  strong,  to  pro- 
tect the  ignorant  from  their  own  nescience.  In  a  labor  dispute  sometimes  it 
is  the  men  who  are  weaker,  at  other  times  it  is  the  masters.  Always  the 
innocent  are  the  greatest  sufferers.  I  can  see  no  reason,  either  in  ethics 
or  expediency,  why  the  simple  and  exact  science  of  the  law  should  not  be 
applied  to  provide  the  remedy.  We  have  tried  other  remedies  and  they  have 
all  proved  failures.  Yet  the  simple  remedy  of  compelling  obedience  to  the 
mandate  of  society,  the  remedy  for  every  other  injury  to  the  body  politic, 
has  been  neglected. 

I  suppose  it  will  be  said  that  the  workingmen  have  almost  universally 
rejected  the  principle  of  "compulsory  arbitration"  and  therefore  it  is  hopeless 
to  try  to  induce  them  to  accept  a  much  more  drastic  scheme  for  the  set- 
tlement of  labor  disputes.  I  protest  most  strongly  against  the  use  of  that 
meaningless  phrase,  "compulsory  arbitration,"  which  is  not  only  meaningless, 
but  an  utter  perversion  of  words.  There  is  no  such  thing  as  "compulsory" 
arbitration.  Arbitration  implies  mutuality,  an  agreement  to  refer  a  matter 
in  dispute  to  the  judgment  of  a  third  party.  When  A.  and  B.  differ  as  to  a 
matter  in  dispute  but  are  desirious  of  reaching  a  settlement  and  agree  to 
abide  by  the  decision  of  C,  there  is  no  necessity  for  A.  B.  and  C.  calling 
D.  E.  and  F.  to  ask  G.  H.  and  I.  to  ascertain  the  merits  of  the  controvers}'. 
\\nien  A.  and  B.  are  determined  to  reach  an  amicable  agreement  there  is 
no  opportunity  for  the  outsider  to  interfere.     No  one  need  "compel"  them 

[744] 


Communications  133 

to  arbitrate.     "Compulsory  arbitration"  is  as  senseless  a  phrase  as  the  pseudo 
medical  term  "heart  failure."     Both  mean  nothing. 

But  when  A.  and  B.  dispute  a  certain  matter  and  A.  finds  that  B.  will 
concede  nothing,  that  he  will  not  submit  the  claim  to  arbitration,  and  being  in 
possession  of  the  disputed  property  and  physically  stronger  is  able  to  retain 
its  possession,  A.  has  two  remedies.  He  may,  if  he  is  foolish,  and  undis- 
ciplined, and  passionate,  and  revengeful,  attempt  to  take  what  he  considers 
his  own  by  force  iiiajeure,  or  he  may,  if  he  is  sensible,  well  balanced  and 
calm,  invoke  the  law  and  rest  assured  that  justice  will  be  done.  If  A.  should 
attempt  to  be  his  own  judge  and  executioner,  if  he  should  destroy  B.'s 
property,  and  not  only  the  property  of  B.  but  that  of  C.  D.  and  E.,  innocent 
persons  who  have  no  interest  in  the  quarrel,  but  who  may  be  caused  great 
inconvenience  and  suffering  by  it,  the  law  will  quickly  punish  A.,  and  society 
will  applaud  the  righteousness  of  the  verdict.  Multiply  A.  and  B.  a  thousand- 
fold, as  in  the  case  of  a  great  labor  dispute,  let  A.  and  B.  cause  untold  misery 
and  suffering  not  only  to  themselves  but  to  the  community  at  large,  and  the 
law,  so  prompt  and  efficacious  in  revenging  the  wrongs  of  society  when  an 
individual  is  the  wrongdoer  or  the  sufferer,  is  veritably  stricken  with  blindness 
and  sits  with  folded  hands  impotent,  incapable,  inefficient.  What  a  travesty 
on  law  and  all  that  law  means ! 


MARRIAGE  AND   DIVORCE   PROVISIONS    IN   THE   STATE   CON- 
STITUTIONS  OF  THE  UNITED   STATES 

By  Frederick  Charles  Hicks,  Ph.  B.,  LL.  B.,  Librarian  U.  S.  Naval  War 

College,  Newport,  R.   I. 

In  connection  with  the  agitation  both  in  church  and  political  circles 
during  recent  years,  and  especially  in  view  of  the  message  recently  sent  to 
Congress  by  President  Roosevelt,  it  is  pertinent  to  inquire  to  what  extent  the 
subjects  of  marriage  and  divorce  have  been  dealt  with  in  the  state  consti- 
tutions of  the  United  States. 

These  being  among  the  subjects  concerning  which  the  federal  consti- 
tution is  silent,  the  power  of  regulating  these  institutions  lies  wholly  with 
the  states.  It  might  have  been  expected  that  subjects  so  important  would 
have  been  treated  by  the  states  in  their  most  dignified  and  lasting  enacted 
laws.  This,  however,  is  not  the  case.  Their  constitutions  touch  only  lightly 
on  these  subjects.  Generally,  when  mentioned  at  all,  the  burden  of  regulating 
marriage  and  divorce  by  general  laws  is  delegated  to  the  legislatures.  There 
is,  however,  in  the  constitutions  themselves,  sufficient  to  give  interest  to 
an  examination  of  these  provisions. 

Marriage  being  the  institution  at  the  basis  of  our  social  existence,  and 
the  bond  from  which  release  is  sought  in  divorce,  it  first  demands  our  atten- 
tion. Out  of  the  forty-five  state  constitutions,  only  eleven  treat  the  subject 
of  marriage  at  all.  A  group  of  southern  states,  including  Alabama,  Florida, 
Mississippi,    North    Carolina,    South    Carolina    and    Tennessee    has    practical 

[745] 


134  The  Annals  of  the  American  Academy 

uniformity  in  a  provision  prohibiting  miscegenation,  with  special  reference 
to  marriage  between  whites  and  negroes  or  persons  of  negro  descent.  In 
Alabama,  any  degree  of  negro  blood  is  prohibitive.  In  Florida,  persons  of 
"negro  descent  to  the  fourth  generation,  inclusive,"  may  not  marry  whites. 
In  Mississippi,  the  prohibition  is  for  persons  having  "one-eighth  or  more  of 
negro  blood."  In  North  Carolina,  for  persons  "of  negro  descent  to  the  third 
generation,  inclusive."  South  Carolina,  like  Mississippi,  specifies  persons 
having  "one-eighth  or  more  negro  blood."  Tennessee  designates  "persons 
of  mixed  blood,  descended  from  a  negro  to  the  third  generation,  inclusive," 
and  prohibits  such  persons  living  with  whites  as  husband  or  wife  without 
marriage. 

The  subject  of  plural  marriages  receives  attention  in  the  constitutions  of 
Idaho,  Utah  and  South  Carolina.  In  Idaho,  in  addition  to  a  general  pro- 
hibition of  bigamy  and  polygamy,  the  ordinary  rights  of  citizenship  are 
denied  to  those  upholding  such  practices.  These  provisions  constitute  the 
most  extensive  notice  of  the  subject  of  marriage  in  any  of  the  constitutions. 

"Art.  I,  Sec.  4.  .  .  .  Bigamy  and  polygamy  are  forever  prohibited  in  the 
state,  and  the  legislature  shall  provide  by  law  for  the  punishment  of  such 
crimes." 

"Art.  6,  Sec.  3.  No  person  is  permitted  to  vote,  serve  as  a  juror,  or  hold 
any  civil  office  .  .  .  who  is  a  bigamist  or  polygamist,  or  is  living  in  what 
is  known  as  a  patriarchal,  plural  or  celestial  marriage,  or  in  violation  of 
any  law  of  this  state,  or  of  the  United  States,  forbidding  any  such  crime; 
or  who,  in  any  manner,  teaches,  advises,  counsels,  aids,  or  encourages  any 
person  to  enter  into  bigamy,  polygamj^  or  such  patriarchal,  plural,  or  celes- 
tial marriage,  or  to  live  in  violation  of  any  such  law,  or  to  commit  any  such 
crime;  or  who  is  a  member  of  or  contributes  to  the  support,  aid,  or  encour- 
agement of  any  order,  organization,  association,  corporation  or  society,  which 
teaches,  advises,  counsels,  encourages  or  aids  any  person  to  enter  into  bigamy, 
polygamy,  or  such  patriarchal  or  plural  marriage,  or  which  teaches  or  advises 
that  the  laws  of  this  state  prescribing  rules  of  civil  conduct,  are  not  the 
supreme  law  of  the  state.    .    .    ." 

In  South  Carolina,  "Persons  convicted  of  .  .  .  bigamy"  are  disqualified 
from  being  registered  or  voting.  In  Utah,  where  we  might  expect  the  sub- 
ject to  be  treated  at  length,  there  is  only  the  terse  statement,  ".  .  .  polyg- 
amous or  plural  marriages  are  forever  prohibited,"  supported  by  the  pro- 
vision that  "An  act  to  punish  polygamy  and  other  kindred  offenses,"  ap- 
proved February  4,  1892,  is  to  remain  in  force. 

In  the  constitution  of  California,  it  is  provided  that  "No  contract  of 
marriage,  if  otherwise  duly  made,  shall  be  invalidated  for  want  of  conformity 
to  the  requirements  of  any  religious  sect." 

In  Massachusetts  and  New  Hampshire,  all  causes  of  marriage  until  such 
time  as  the  legislature  shall  have  made  other  provision  are  to  be  heard  and 
tried  by  the  "governor  and  council,"  and  by  the  "superior  court"  respectively. 

[Sections  in  state  constitutions  relating  to  marriage:  Alabama,  Art.  4, 
Sec.  102;  California,  Art.  20,  Sec.  7;  Florida,  Art.  16,  Sec.  24;  Idaho,  Art.  i, 
Sec.  4,  Art.  6,  Sec.  3 ;  Massachusetts,  Chap.  3,  Art.  5 ;  Mississippi,  Art.  14, 

[746] 


Comnnmications  135 

Sec.  263;  New  Hampshire,  Art.  75;  North  Carolina,  Art.  14,  Sec.  8;  South 
Carolina,  Art.  2,  Sec.  6,  Art.  3,  Sec.  33;  Tennessee,  Art.  11,  Sec.  14;  Utah,  Art. 
3,  Sec.  I,  Art.  24,  Sec.  2.] 

The  subject  of  divorce  has  been  more  generally  dealt  with  than  marriage 
in  the  constitutions  of  the  states,  but  with  less  diversity  of  treatment.  Forty- 
one  of  the  state  constitutions  have  some  mention  of  divorce.  Of  these,  twenty- 
five  in  almost  identical  terms  have  the  following  provision :  "The  legislature 
shall  not  pass  local  or  special  laws  in  any  of  the  following  cases ;  .  .  . 
granting  divorces  .  .  ."  These  states  are  Alabama,  Arkansas,  California, 
Colorado,  Florida,  Idaho,  Illinois,  Indiana,  Kentucky,  Louisiana,  Maryland, 
Mississippi,  Missouri,  Montana,  Nebraska,  Nevada,  North  Carolina,  North 
Dakota,  Oregon,  Pennsylvania,  South  Dakota,  Texas,  Utah,  West  Virginia 
and  Wyoming.  A  provision  similar  in  effect  is  found  in  the  constitutions  of 
eleven  states,  namely,  Delaware,  Iowa,  Kansas,  Michigan,  Minnesota,  New 
Jersey,  New  York,  Ohio,  Tennessee,  Washington  and  Wisconsin.  The  fol- 
lowing are  samples  of  these  provisions :  "No  divorce  shall  be  granted,  nor 
alimony  allowed,  except  by  the  judgment  of  a  court,  as  shall  be  prescribed 
by  general  and  uniform  law"  (Del.)  ;  "No  divorce  shall  be  granted  by  the 
General  Assembly"  (Iowa)  ;  "All  power  to  grant  divorces  is  vested  in  the 
district  courts,  subject  to  regulation  by  law"  (Kans.)  ;  "The  general  assembly 
shall  grant  no  divorce,  nor  exercise  any  judicial  power  not  herein  expressly 
conferred"   (Ohio). 

In  Massachusetts  and  New  Hampshire,  it  is  provided  that  all  causes  of 
divorce  and  alimony  shall  be  heard  and  tried  by  the  "governor  and  council," 
and  by  the  "superior  court,"  respectively,  until  such  time  as  the  legislature 
shall  make  other  provision. 

Connecticut,  Maine,  Rhode  Island  and  Vermont  do  not  mention  the 
subject  of  divorce. 

The  only  instances  of  originality  in  the  treatment  of  this  subject  in  state 
constitutions  are  to  be  found  in  two  southern  states.  Georgia,  while  not  pro- 
hibiting divorces,  evidently  frowns  on  them.  The  provisions  in  her  constitu- 
tion are  the  following: 

"Art.  6,  Sec.  15,  Pt.  i.  No  total  divorce  shall  be  granted,  except  on  the 
concurrent  verdicts  of  two  juries  at  different  terms  of  court.  Pt.  2.  When  a 
divorce  is  granted,  the  jury  rendering  the  final  verdict  shall  determine  the 
rights  and   disabilities  of  the  parties." 

"Art.  6,  Sec.  16,  Pt.  i.  Divorce  cases  shall  be  brought  in  the  county 
where  the  defendant  resides,  if  a  resident  of  this  state ;  if  the  defendant  be 
not  a  resident  of  this  state,  then  in  the  county  in  which  the  plaintiff  resides." 

South  Carolina,  however,  comes  out  flat-footed  with  the  prohibition, 
"Divorces  from  the  bonds  of  matrimony  shall  not  be  allowed  in  this  state." 

It  should  be  noted  that  except  in  the  case  of  Georgia  no  distinction  is 
made  between  divorces  a  vinculo  and  divorces  a  mensa  et  thoro.  It  is  plain, 
however,  that  the  legislatures  have  no  power  to  grant  divorces  of  either 
character,  except  by  general  law  enforceable  in  the  courts.  What  these  legis- 
latures have  seen  fit  to  enact  on  the  subject  of  absolute  divorce  with  right  to 
remarry  has  been  summarized  by  Bishop  William  C.  Doane  in  an  article  in 

[747] 


136  The  Annals  of  the  American  Acadetny 

Public  Opinion,  March  4,  1905.  His  statistics  include  the  territories  as  well 
as  the  states.  "South  Carolina  has  no  divorce  law.  New  York  grants  a 
divorce  only  for  adultery.  Out  of  51  states,  adultery  is  a  ground  in  50;  but, 
in  24  of  these  51,  wilful  neglect  to  provide  and  gross  neglect  of  duty  is  a 
cause;  in  40,  habitual  drunkenness;  in  43  out  of  the  51,  imprisonment  for 
felonj^  or  infamous  crime;  and  in  48  out  of  the  51,  desertion  or  abandonment." 

Since  it  is  now  coming  to  be  conceded  that  a  national  divorce  law, 
obtainable  only  through  an  amendment  to  the  federal  constitution,  and  action 
by  Congress,  if  not  impracticable,  is  of  doubtful  desirability,  would  it  not  be 
well  to  attack  this  problem  through  more  extensive  and  uniform  provisions  in 
state  constitutions  concerning  marriage  and  divorce,  which  shall  be  obtained 
through  direct  appeal  to  the  people  of  the  several  states? 

[Sections  in  state  constitutions  relating  to  divorce:  Alabama,  Art.  4, 
Sec.  104;  Arkansas,  Art.  5,  Sec.  24;  California,  Art.  4,  Sec.  25;  Colorado, 
Art.  5,  Sec.  25;  Delaware,  Art.  2,  Sec.  18;  Florida,  Art.  3,  Sec.  20;  Georgia, 
Art.  6,  Sec.  15,  pts.  i,  2,  Art.  6,  Sec.  16,  pt.  i ;  Idaho,  Art.  3,  Sec.  19;  Illinois, 
Art.  4,  Sec.  22 ;  Indiana,  Art.  4,  Sec.  22 ;  Iowa,  Art.  3,  Sec.  27 ;  Kansas,  Art.  2, 
Sec.  18;  Kentucky,  Sec.  59;  Louisiana,  Sec.  48;  Maryland,  Art.  3,  Sec.  33; 
Massachusetts,  Chap.  3,  Art.  5 ;  Michigan,  Art.  4,  Sec.  26 ;  Minnesota,  Art.  4. 
Sec.  28;  Mississippi,  Art.  4,  Sec.  90,  Art.  6,  Sec.  159;  Missouri,  Art.  4,  Sec.  53; 
Montana,  Art.  5,  Sec.  26;  Nebraska,  Art.  3,  Sec.  15;  Nevada,  Art.  4,  Sec.  20; 
New  Hampshire,  Art.  75 ;  New  Jersey,  Art.  4,  Sec.  7,  No.  i ;  New  York, 
Art.  I,  Sec.  9;  North  Carolina,  Art.  2,  Sec.  10;  North  Dakota,  Art.  2,  Sec  69; 
Ohio,  Art.  2,  Sec.  32 ;  Oregon,  Art.  4,  Sec.  23 ;  Pennsylvania,  Art.  3,  Sec.  7 ; 
South  Carolina,  Art.  17,  Sec.  3;  South  Dakota,  Art.  3,  Sec  23;  Tennessee, 
Art.  II,  Sec.  4;  Texas,  Art.  3,  Sec.  56;  Utah,  Art.  6,  Sec.  26;  Virginia, 
Art.  4,  Sec.  63;  Washington,  Art.  2,  Sec.  24,  Art.  4,  Sec.  6;  West  Virginia, 
Art.  6,  Sec.  39;  Wisconsin,  Art.  4,  Sec.  24;  Wyoming,  Art.  2,  Sec.  27.] 


BOOK    DEPARTMENT 


NOTES. 


Andrews,  Charles  M.  Colonial  Self-Govcrnmcntj  1652-1689.  (The  American 
Nation  Series,  ed.  by  A.  B.  Hart,  Vol.  V.)  Pp.  xviii,  369.  New  York: 
Harper  &  Bros.,  1904. 

See  "Book  Reviews." 

A  New  York  Working  Girl.      The  Long  Day.     Pp.  303.     Price,  $1.20.     New 

York :  The  Century  Company,  1905. 
Far  more  valuable  as  a  real  portrayal  of  actual  conditions  than  most  of  the 
attempts  of  students  to  live  the  life  of  other  groups  is  this  simply  told  story  of 
an  anonymous  writer.  The  struggle,  the  suffering,  the  hardship,  the  sham  of 
much  pretended  charity,  the  final  success  ring  true.  The  author  entering  New 
York  with  practically  no  funds  plunges  at  once  into  the  struggle  for  a  place. 
Miss  Kellor's  book,  "Out  of  Work,"  takes  on  stronger  meaning  when  this  bit  of 
autobiography  is  read.  The  author  pleads  that  many  existing  abuses  be 
corrected;  that  self-supporting  homes  for  working  girls  free  from  taint  of 
almsgiving  or  sanctified  cant  be  established.  She  believes  that  immorality 
and  other  vices  are  more  prevalent  amongst  working  girls  than  many  writers 
would  have  us  believe.  Much  of  this  is  due  in  her  opinion  to  the  conditions 
of  labor  and  housing  which  might  be  remedied.    The  book  deserves  a  reading. 

Bourne,  Edward  G.      Spain  in  America,  1450- 1580.     (The  American  Nation 

Series,  ed.  by  A.  B.  Hart,  Vol.  HI.)  Pp.  xx,  350.  New  York:  Harper 
&  Bros.,  1904. 

See  "Book  Reviews." 

Cheyney,  Edward  P.    European  Background  of  American  History,  1300-1600. 

(The  American  Nation  Series,  ed.  by  A.  B.  Hart,  Vol.  I.)     Pp.  xxv,  343. 

New  York :  Harper  &  Bros.,  1904. 
See  "Book  Reviews." 

Committee  of  Fifty,  The.     The  Liquor  Problem.     Pp.  ix,  182.     Price,  $1.00. 

Boston  and  New  York :  Houghton,  Mifflin  &  Co.,  1905. 
A  genuine  service  has  been  rendered  by  the  committee  by  this  digest  of  its 
studies  under  the  editorship  of  Professor  Francis  G.  Peabody.  Many  who 
are  deeply  interested  in  the  subject,  but  without  time  for  the  reading  of  the 
separate  reports,  will  here  find  their  essence  in  brief  compass  and  entertaining 
form.  The  work  of  the  committee  forms  the  best  source  of  accurate  in- 
formation upon  the  various  phases  of  the  liquor  problem,  for  the  studies  are 
rightly  named  and  are  not  discussions  from  preconceived  standpoints.  Mr. 
John  S.  Billings  writes  the  summary  of  the  investigations  concerning  the 
Physiological  Aspects  of  the  Liquor  Problem;  Mr.  Charles  W.  Eliot  regard- 

[749I 


138  The  Annals  of  the  American  Academy 

ing  Legislative  Aspects ;  Mr.  Henry  W.  Farnam  on  Economic  Aspects ;  Mr. 
Jacob  L.  Greene  on  Ethical  Aspects,  and  Mr.  Raymond  Calkins  on  Substitutes 
for  the  Saloon.  For  the  general  reader  this  little  book  is  the  most  import- 
ant treatise  upon  the  subject.     It  should  receive  wide  attention. 

Davenport,  Frederick  Morgan.     Primitive  Traits  in  Religious  Revivals.     Pp. 

xii,  323.  Price,  $1.50.  New  York:  The  Macmillan  Company,  1905. 
The  author,  who  is  a  professor  of  sociology  at  Hamilton  College,  fittingly 
calls  his  book  "a  study  in  mental  and  social  evolution."  It  is  a  valuable  con- 
tribution to  our  knowledge.  Every  minister  should  read  it  carefully  and  take 
its  lessons  to  heart.  The  social  student  will  find  it  helpful  in  explaining 
phenomena  which  have  not  received  the  attention  they  deserve. 

Beginning  with  the  thesis  that  revivals  are  forms  of  impulsive  social 
action  and  that  the  mind  of  the  primitive  man  is  less  stable  and  less  con- 
trolled by  the  higher  brain  centers  than  civilized  man,  the  author  reviews 
the  religion  of  the  Indian  and  Negro.  Then  the  Scotch-Irish  revival  in  Ken- 
tucky in  1800;  in  Ulster,  1859,  and  the  revivals  of  Edwards,  Wesley,  Finney 
and  Moody  are  carefully  outlined.  Much  that  is  thoroughly  bad  in  methods 
and  results  is  revealed  and  the  elements  of  fear,  hypnotic  influence,  etc.,  con- 
demned. On  the  other  hand,  the  author  believes  in  a  newer  and  saner  evan- 
gelism and  in  the  development  of  a  higher  spirituality.  "The  days  of  religious 
effervescence  and  passional  unrestraint  are  dying.  The  days  of  intelligent, 
undemonstrative  and  self-sacrificing  piety  are  dawning." 

Dunning,  William  A.  A  History  of  Political  Theories  from  Luther  to  Mon- 
tesquieu. Pp.  xii,  459.  Price,  $2.50.  New  York:  The  Macmillan  Com- 
pam',    1905. 

Reserved  for  later  notice. 

Fagnot,  Millerand  et  Strohl.  La  durce  legale  du  travail.  Des  modiiications  a 
apporfcr  a  la  hi  de  1900.     Pp.  300.     Price,  2.50  fr.     Paris:  Felix  Alcan. 

Farrand,  Livingston.  Basis  of  American  History,  1500-1900.  (The  American 
Nation  Series,  ed.  by  A.  B.  Hart,  Vol.  II.)  Pp.  xviii,  303.  New  York: 
Harper  &  Bros.,  1904. 

See  "Book  Reviews." 

Hibbard,  Benjamin  H.  The  History  of  Agriculture  in  Dane  County,  Wis- 
consin. (Economics  and  Political  Science  Series,  No.  2,  Vol.  I.)  Pp. 
127.     Madison :  University  of  Wisconsin. 

Jenks,  Albert  Ernest.       The   Bontoc  Igorot.     Pp.   266  and    plates.     Manila : 

Bureau  of  Public  Printing,  1905. 
This  monograph  is  the  first  volume  of  the  reports  of  the  ethnological  survey 
of  which  the  author  is  the  chief.  The  material  was  gathered  during  a  five 
months'  residence  in  1903  in  the  Bontoc  pueblo  of  north  central  Luzon.  The 
volume  is  profusely  illustrated.  It  is  a  matter  of  congratulation  that  the 
study  of  the  native  races  of  the  Philippines  is  being  systematically  undertaken. 
This  excellent  study  reflects  great  credit  upon  the  author. 

[750] 


Notes  139 

Macedo,  Pablc.     La  Evolucion  Mercantile  Comunicaciones  y  Obras  Ptiblicas, 

La  Hacienda  Publica.  Pp.  617.  Mexico :  J.  Ballesca  y  Ca.,  1905. 
In  a  volume  entitled  "La  Evolucion  Mercantil,  Comunicaciones  y  Obras  Pub- 
licas,  La  Hacienda  Publica,"  Mr.  Macedo  has  published  three  monographs 
which  constitute  an  important  contribution  to  the  economic  history  of  Mexico. 
In  reading  this  volume  one  is  impressed  with  the  far-reaching  changes  that 
have  taken  place  during  the  administration  of  President  Diaz.  The  devel- 
opment of  the  means  of  communication,  the  improvement  of  the  ports  and 
the  reorganization  of  the  finances  of  the  country  were  tasks  which  might  well 
have  appalled  a  less  resolute  and  patriotic  statesman.  In  this  work,  espe- 
cially in  the  financial  reorganization  of  the  country,  the  author  has  played  an 
important  part.  As  a  member  of  the  Commission  on  Monetary  Reform  he 
exerted  considerable  influence  in  laying  the  basis  for  the  introduction  of  the 
gold  standard  and  the  establishment  of  a  stable  monetary  system.  It  is  to  be 
hoped  that  Mr.  Macedo  will  supplement  this  series  with  a  monograph  on  the 
mining  and  agricultural  development  of  the  country. 

Milyoukov,  PauL   Russia  and  its  Crisis.    Pp.  xv,  589.    Price,  $3.00.     Chicago : 

University  Press.    London :  T.  Fisher  Unwin,  1905. 
Reserved  for  later  notice. 

Moimier,  Auguste.  Les  Accidents  du  Travail  dans  I' Agriculture  et  la  Legisla- 
tion Anglaise.     Pp.  204.     Paris :  L.  Larose. 

New  York.  Public  Papers  of  George  Clinton,  First  Governor  of  New  York, 
1777-1795;  1801-1804.  Vols.  VII  and  VIII.  Published  by  the  State  of 
New  York. 

Pigafetta,  Antonio.      Magellan's    Voyage   Around    the    World.     Two    Vols. 

Price,  $7.50.  Cleveland :  The  Arthur  H.  Clark  Company,  1905. 
Pigafetta's  "Account  of  Magellan's  Voyage  Around  the  World"  has  just  come 
from  the  press.  The  original  and  complete  Italian  text  with  page-for- 
page  English  translation  and  annotated  by  James  A.  Robertson,  with  facsimiles 
of  the  original  plates  and  maps.  Pigafetta  is  the  best  and  fullest  authority 
for  Magellan's  voyage  which  is  here  completely  presented  in  English  for  the 
first  time. 

Redlich,  Josef.  Local  Government  in  England.  Edited  by  F.  W.  Hirst.  Two 
Vols.  Pp.  xxvi,  427,  and  x,  435.  Price,  21s.  each.  London:  The  Mac- 
millan  Company. 

See  "Book  Reviews." 

Reeves,  Jessie  S.  The  Napoleonic  Exiles  in  America.  (Johns  Hopkins  Uni- 
versity Studies  in  Historical  and  Political  Science,  Series  XXIII,  Nos. 
9,   10.) 

Reinsch,  Paul  S.  Colonial  Administration.  (Citizen's  Library  of  Economics, 
Politics  and  Sociology,  edited  by  R.  T.  Ely.)  Pp.  viii,  422.  Price,  $1.50. 
"New  York:  The  Macmillan  Company,  1905. 

Reserved  for  later  notice. 

[751] 


I40  The  Annals  of  the  American  Academy 

Salz,  Arthur.  Beitr'dgc  zur  Geschichtc  und  Kritik  der  Lohnfondstheorie. 
(Miinchener  Volkswirtschaftliche  Studien,  No.  70.)  Pp.  200.  Price, 
4.50  M.    Stuttgart :  J.  G.  Cotta,  1905. 

Sherman,  Waldo  H.  Civics.  Pp.  x,  328.  New  York :  The  Macmillan  Com- 
pany, 1905. 
A  book  "for  students  who  have  at  least  reached  high  school  age."  The  pur- 
pose is  worthy  indeed,  and  some  of  the  methods  of  presentation  show  that 
the  author  is  concrete  and  understands  how  to  instruct.  But  he  should  not 
have  undertaken  to  write  this  book  before  thinking  himself  out  clearly  and 
fully.  It  can  hardly  be  a  mere  mistake  in  the  choice  of  language  which  per- 
mits him  to  say  (page  76),  "The  United  States,  as  we  have  seen,  is  given 
power  by  the  Constitution  (sic)  to  regulate  commerce,"  etc.  The  sins  against 
good  English  are  numerous,  and  seriously  affect  the  educational  purpose  of 
the  book. 

The  volume  is  divided  into  two  parts,  "Studies  in  American  Citizenship" 
and  "Collegeville."  In  the  first,  Land  and  Government,  Civil  Organizations, 
Banks,  Civic  and  Municipal  Institutions,  Justice,  etc.,  are  treated.  In  the 
second,  "Collegeville"  represents  a  township  and  the  various  problems  of 
American  citizenship  are  solved  in  an  ideal  fashion.  The  Declaration  of 
Independence  and  the  Constitution  are  appended. 

Sinclair,  William  A.     The  Aftermath  of  Slavery.     Pp.  xiii,  358.     Price,  $1.50. 

Boston :  Small,  Maynard  &  Co.,  1905. 
The  author,  born  in  slavery,  has  been  the  financial  secretary  of  Howard 
University  for  the  past  sixteen  years.  In  this  volume  he  seeks  to  study  "the 
condition  and  environment  of  the  American  negro."  It  seems  a  bit  curious 
then  to  find  the  first  seven  of  the  ten  chapters  devoted  to  a  discussion  of  the 
legal  and  political  status  of  the  negro,  while  the  last  two  chapters  largely 
deal  with  the  same  topics.  But  one  chapter  (No.  7)  of  thirty-two  pages  is 
needed  to  tell  of  "The  Rise  and  Achievements  of  the  Colored  Race."  The 
author  finds  in  slavery  the  roots  of  whatever  is  bad  among  negroes  to-day. 
He  has  nothing  but  praise  for  all  the  reconstruction  measures  of  the  Repub- 
lican party.  The  South  to-day  would  re-enslave  the  black  if  possible.  The 
moral  sentiment  of  the  rest  of  the  country  together  with  the  power  of  the 
negroes  will  compel  a  readjustment  until  the  negroes  get  their  rights.  There 
is  a  fearful  condemnation  of  southern  conditions  backed  up  by  much  evidence 
which,  however,  almost  totally  ignores  the  thousands  of  instances  of  good 
treatment  which  must  surely  offset  some  of  the  bad. 

The  author  is  critical,  not  to  say  vindictive.  The  style  is  clean  and  forceful. 
Of  its  kind  it  is  the  best  any  negro  has  written.  The  trouble  is  that  the  kind 
is  bad.  It  is  the  thesis  of  a  special  pleader  making  strong  his  case  by  ignor- 
ing the  other  side.  It  is  in  no  sense  a  study  of  the  American  negro  for  it 
makes  no  contribution  to  our  knowledge,  nor  does  it  suggest  any  new  methods 
of  improving  conditions.  It  is  worth  while  to  read  the  book  to  see  what  an 
intelligent  negro  thinks  of  the  situation,  but  one  closes  it  with  a  deep  sense 
of  regret  that  the  author  sees  so  little  that  is  good. 

[752] 


The  American  Nation  141 

Thwaites,   Reuben  Gold,    Ed.     Early    Western   Journals,    1748-1765.      Price, 

$4.00.  Cleveland :  The  Arthur  H.  Clark  Company,  1905. 
This  important  volume  on  early  Pennsylvania  history  has  recently  been  issued. 
The  volume  presents  the  best  and  rarest  contemporary  accounts  of  the  most 
interesting  period  of  early  Pennsylvania  history,  giving  the  journals  of  Con- 
rad Weiser  and  George  Croghan,  Indian  agents  from  1748-1765,  and  of  Post, 
the  Moravian  missionary.  These  journals  form  the  very  best  contemporary 
material  for  the  history  of  the  last  French  War  and  Pontiac's  conspiracy. 

Tyler,  Lyon  G.  England  in  America,  1580-1652.  (The  American  Nation 
Series,  edited  by  A.  B.  Hart.  Vol.  IV.  Pp.  xx,  355.  New  York :  Harper 
&  Bros.,  1904. 

See  "Book  Reviews." 

Whelpley,  J.  D.    The  Problem  of  the  Immigrant.     Pp.  viii,  294.     Price,  $3.00. 

New  York:  E.  P.  Dutton  &  Co.,  1905. 
In  this  study  the  author  presents,  after  a  brief  discussion  of  the  general  ques- 
tion, "a  summary  of  conditions,  laws  and  regulations  concerning  the  move- 
ment of  population  to  and  from  the  British  Empire.  United  States,  France, 
Belgium,  Switzerland,  Germany,  Italy,  Austria-Hungarj',  Spain,  Portugal, 
Netherlands,  Denmark,  Scandinavia  and  Prussia."  Such  data  is  not  easily 
accessible  to  the  average  student  or  legislator  and  the  volume  will  be  of  great 
service.  The  information  was  collected  on  the  ground.  The  author  does  not 
pretend  to  discuss  the  many  vexing  problems.  It  is  to  be  hoped  that  he  will 
do  this  in  a  later  monograph. 

Williams,  Ralph  D.  The  Honorable  Peter  White:  A  Biographical  Sketch  of 
the  Lake  Superior  Iron  Country.  Pp.  xvi,  205.  Cleveland :  Penton 
Publishing  Company,   1905. 

Willis,  Henry  P.     Our  Philippine  Problem.     Pp.  xiii,  479.     Price,  $1.50.    New 

York:  Henry  Holt  &  Co.,  1905. 
See  "Book  Reviews." 


REVIEWS. 

Hart,  Albert  Bushnell  (Ed.).      The  American  X'ation.     Five  Volumes.     First 

Series.     Price,  $9.00.    New  York :  Harper  &  Bros.,  1904-05. 

Vol.  I.  European  Background  of  American  History.  E.  P.  Cheyney. 
Pp.  XXV,  343. 

Vol.  II.    Basis  of  American  History.    Livingston  Farrand.    Pp.  xviii,  303. 

Vol.  III.     Spain  in  America.     Edward  Gaylord  Bourne.     Pp.  xx,  350. 

Vol.  IV.     England  in  America.     Lyon  Gardiner  Tyler.     Pp.  xvii,  355. 

Vol.  V.  Colonial  Self-Government.  Charles  McLean  Andrews.  Pp. 
xviii,  369. 

Among  the  numerous  recent  histories  of  the  United  States  this  one,  to 
be  completed  in  twenty-eight  volumes,  bids  fair  to  surpass  not  only  its  imme- 
diate associates,  but  to  be  considered  as  the  best  of  all.  Every  method  has  its 
defects.  In  the  present  case  it  is  obviously  impossible  to  expect  with  twenty- 
six  authors  the  unity  of  style  with  its  accompanying  charms  to  be  found  in 

[753] 


142  The  Annals  of  the  American  Academy 

Prescott  or  McMaster.  The  effort  of  the  editor  to  keep  the  volumes  uniform 
in  size  must  also  have  some  bad  effects.  On  the  other  hand,  the  reader  has 
the  great  advantage  of  getting  the  ripe  judgment  of  a  specialist  in  each  field. 
Suffice  it  in  general  to  say  that  the  volumes  are  clearly  written,  with  rare 
good  taste  as  to  perspective  and  proportion.  They  are  untechnical,  but  are 
provided  with  ample  foot-notes  and  critical  bibliographies.  The  reader  may 
be  sure  that  all  crass  errors  are  eliminated.  The  attempt  is  constantly  made 
to  portray  the  life  of  the  people  and  to  explain  events  in  the  light  of  economic 
opportunity  and  social  conditions  so  that  the  political  side  is  not  over- 
emphasized. Judging  by  the  first  series,  the  history  will  be,  when  complete,  a 
monumental  work  fitted  to  stand  comparison  with  similar  productions  of  the 
English  and  German  students. 

The  series  begins  fittingly  with  the  volume  on  "The  European  Back- 
ground of  American  History,"  by  Professor  E.  P.  Cheyney,  of  the  University 
of  Pennsylvania.  The  significance  of  the  disturbance  of  ancient  trade  routes 
by  the  Turkish  invasion  is  set  forth,  as  is  also  the  story  of  the  great  com- 
mercial companies.  The  European  governments  of  the  sixteenth  century  are 
described  and  the  effect  of  the  Reformation  traced.  Thus  the  reader  comes  to 
understand  the  conditions  which  led  to  the  discovery  of  America  and  the 
migration  of  the  early  settlers. 

Volume  II,  "Basis  of  American  History,"  by  Professor  Livingston  Far- 
rand,  is  a  most  important  contribution  to  our  literature.  It  fills  a  place 
hitherto  almost  vacant.  For  the  general  reader  it  furnishes  the  best  account 
of  the  life  and  civilization  of  the  Indians,  telling  in  addition  something  of 
the  physiography,  the  flora  and  fauna  of  the  country.  It  seems  a  bit  inhar- 
monious to  find  statistics  of  recent  mineral  production  and  yield  of  corn, 
but  these  were  evidently  considered  necessary  in  view  of  the  history  as  a 
whole.  One  only  wishes  that  Professor  Farrand  could  have  told  a  little 
more  about  the  Indians  and  the  degree  to  which  they  utilized  natural  oppor- 
tunities. 

In  the  third  volume,  "Spain  in  America,"  Professor  Edward  Gaylord 
Bourne,  of  Yale,  tells  of  the  great  discoverers,  Magellan  being  given  highest 
rank;  of  the  beginnings  of  the  Spanish  colonial  policy  and  the  race  condi- 
tions in  Spanish-America  down  to  1821.  Professor  Bourne  gives  Spain 
greater  credit  than  the  layman  usually  thinks  her  due  and  shows  the  existence 
of  a  culture  in  the  colonies  little  mentioned  by  most  writers.  Yet,  in  the 
foolish  restrictions  put  upon  trade  and  in  the  lack  of  initiative  and  self-gov- 
ernment lay  the  seeds  of  final  decay.  Even  to-day  Latin  civilization  has  a 
firm  hold  upon  American  soil  and  the  author  has  done  well  to  emphasize 
the  many  good  things  in  earlier  Spanish  customs. 

President  Tyler,  of  Williams  and  Mary  College,  traces  the  English  set- 
tlements, in  Volume  IV,  "England  in  America."  The  contrasts  between  North 
and  South  in  soil  and  climate  with  their  results  upon  social  and  commercial 
life  are  indicated,  together  with  the  final  conquest  of  the  wilderness  and  the 
victory  over  other  nations,  tracing  the  history  down  to  1652. 

The  last  volume  of  the  "first  series"  is  from  the  pen  of  Professor  Charles 
M.  Andrews,  of  Bryn  Mawr  College,  and  is  entitled  "Colonial  Self-Gpvern- 

[754] 


The  Far  Eastern  Tropics  143 

ment."  The  new  colonial  system  after  1652  is  the  author's  starting  point,  and 
the  editor  claims  that  some  of  the  vexed  problems  regarding  the  charters 
of  Connecticut  and  Rhode  Island  have  been  settled  by  Professor  Andrews' 
researches.  Much  new  material  is  presented  relative  to  the  other  colonies 
and  the  beginnings  of  Pennsylvania.  The  volume  closes  with  a  description 
of  the  social  and  economic  conditions  about  1689. 


Carl  Kelsey. 


University  of  Pennsylvania. 


Ireland,  AUeyne.    The  Far  Eastern  Tropics.    Pp.  vii,  339.    Price,  $2.00.     Bos- 
ton and  New  York:  Houghton,  Mifflin  &  Co.,  1905. 

Mr.  Ireland's  book  presents  a  number  of  strong  points ;  it  is  based  on 
first-hand  knowledge,  gathered  during  a  two  years'  stay  in  the  Far  East,  it  is 
for  the  most  part  clearly  written  in  an  interesting  style,  it  gives  just  the  facts 
which  an  American  might  wish  to  know,  and  its  conclusions  are  given  with  an 
impartiality,  honesty  and  forcefulness  which  must  carry  the  greatest  weight 
in  the  minds  of  the  unprejudiced.  The  work  consists  of  a  number  of  descrip- 
tive and  critical  essays,  published  at  irregular  intervals,  but  all  of  uniform 
plan,  dealing  with  the  most  important  British,  Dutch,  French  and  American 
dependencies  in  the  Far  East.  They  have  been  brought  up  to  date  and  care- 
fully fitted  together  so  that  they  constitute  a  harmonious  whole,  far  superior 
in  value  to  the  author's  previous  work. 

Starting  out  from  the  influence  of  environment  upon  civilization,  the 
author  agrees  with  Mr.  Kidd  that  the  tropical  countries  are  devoid  of  all  ability 
to  produce  and  maintain  an  advanced  civilization.  India,  Egypt,  Peru  and  Mexico 
were  at  one  time  highly  civilized,  owing  to  the  remarkable  fertility  of  their  en- 
vironment, but  since  this  civilization  was  based  purely  upon  the  exceptional  fer- 
tility of  nature  rather  than  the  ability  of  man,  it  could  not  endure.  The  vigor 
of  mind  and  body  which  can  only  come  from  conflict  with  nature  gives  rise 
to  the  highest  and  most  permanent  forms  of  progress,  which  are  now  realized 
in  what  we  term  western  civilization.  The  peoples  of  the  heated  area  having 
come  under  the  tutelage  of  the  northern  nations  the  question  arises — how 
can  efficient  government  and  a  reasonably  advanced  state  of  development  be 
maintained?  Shall  our  chief  aim  be  to  develop  the  native  population  for 
complete  self-government?  The  author  answers,  "if  native  ideals  are  to  pre- 
vail, the  substantial  control  of  affairs  must  remain  in  the  hands  of  natives, 
.  .  .  if  the  administration  is  to  be  conducted  on  western  lines  the  control 
must  rest  with  white  men."  The  chapters  on  Hong  Kong,  British  North 
Borneo,  Sarawak,  Burma,  the  Malaccan  colonies,  Java  and  French  Indo-China 
all  show  how  Great  Britain,  Holland  and  France  have  maintained  a  strong 
control  over  those  dependencies  in  which  the  natives  outnumber  the  white 
population.  This  control  may  often  be  disguised  with  the  object  of  sparing 
aboriginal  susceptibilities ;  it  may  be  moderated  so  as  to  enlist  large  numbers 
of  natives  in  the  civil  service,  but  always  there  exists  the  undoubted  legisla- 
tive, administrative  and  judicial  control  which  initiates  measures,  carries 
them  through  the  legislative  bod}^  executes  and  interprets  them.     The  Far 

[755] 


144  ^^^  Annals  of  the  Anwrican  Academy 

Eastern  Tropics  are  governed,  and  in  the  main  well-governed,  by  the  white 
man. 

Next  follow  four  chapters  on  American  rule  in  the  Philippines,  in  the 
course  of  which  Mr.  Ireland  unsparingly  points  out  the  weaknesses  of  the 
existing  government.  The  more  important  of  these  are,  the  futile  attempt 
to  prepare  the  natives  in  a  decade  for  a  political  system  which  it  took  white 
men  centuries  to  develop;  "the  insistence  upon  the  curious  fallacy  that  educa- 
tion is  the  first  need  of  the  islands,  when  the  great  natural  resources  of  the 
archipelago,  whose  development  is  absolutely  essential  to  the  maintenance  of 
prosperity,  remain  practically  untouched ;  the  establishment  of  one  of  the  most 
costly  colonial  governments  in  the  whole  tropics,  which  nevertheless  returns 
a  minimum  of  permanent  public  works  to  the  taxpayer  in  compensation  for 
exorbitant  taxes ;  the  failure  to  establish  peace  and  order  and  to  protect 
those  natives  who  are  loyal  to  the  government ;  the  maintenance  of  a  pro- 
hibitive tariff  against  Philippine  exports  to  the  United  States ;  the  failure 
to  give  a  full  and  detailed  statement  of  government  expenditures,  and  the 
absence  of  any  effort  to  insure  an  adequate  labor  supply  for  the  islands. 

Two  of  these  points  deserve  special  consideration,  viz.,  the  tariff  and 
the  labor  supply.  The  governor  and  commission  have  repeatedly  urged  with 
unanswerable  logic  the  necessitj'  of  allowing  the  Filipino  to  market  his 
products  in  the  United  States,  and  it  is  reported  that  the  recent  tour  of  the 
islands  by  members  of  Congress  in  company  with  the  Secretary  of  War,  has 
already  had  a  marked  effect  in  showing  the  need  for  an  immediate  change. 
Hitherto  Congress  has  refused  to  remove  this  insurmountable  barrier  to 
Philippine  progress.  In  the  matter  of  the  labor  supply  Mr.  Ireland  shows 
that  throughout  the  country  districts  it  is  practically  impossible  to  obtain 
either  skilled  or  unskilled  labor  because  of  the  indolent  nature  of  the  inhabi- 
tants and  the  fact  that  the  few  who  will  work,  go  to  the  cities.  But  the 
author  goes  much  farther;  he  demonstrates  that  in  almost  all  the  tropical 
countries  of  the  world  where  industrial  development  is  taking  place,  this 
development  rests  upon  coolie  labor  from  China  or  East  India.  It  is  not  to 
be  denied  that  the  disadvantages  of  the  coolie  labor  system  should  be  weighed 
in  the  balance,  but  neither  is  it  possible  to  escape  the  inexorable  conclusion 
that  if  the  native  will  not  work,  either  the  country  must  be  abandoned  to 
industrial  stagnation  or  a  supply  of  willing  laborers  must  be  brought  in 
from  abroad.  The  weight  of  evidence  is  in  favor  of  the  admission  of  the 
Chinaman  to  the  Philippines. 

James  T.  Young. 
University  of  Pennsylvania. 


Judson,  Frederick  N.       The   Lazv   of  Interstate   Commerce  and  its   Federal 
Regulation.     Pp.   xix.  509.     Price,  $5.00.     Chicago:  T.  H.  Flood  &  Co., 

1905- 

Mr.  Judson  has  written  his  volume  for  the  purpose  of  presenting  in  a 
"compact  form  the  law  of  interstate  commerce  as  declared  by  the  courts 
since  the  adoption  of  the  Constitution,   and   also  enacted  by  Congress  and 

[756] 


Local  Government  in  England  145 

applied  by  the  Interstate  Commerce  Commission  in  the  direct  exercise  of  the 
power  of  federal  regulation."  "It  is  the  aim  of  this  book  to  state  without 
needless  amplificatirm  or  iteration  the  existing  law,  as  its  rules  have  been 
judicially  formulated,  and  the  interesting  questions  of  public  policy  connected 
with  this  subject  have  therefore  not  been  discussed." 

The  volume  is  divided  into  two  parts,  the  first  part,  comprising  about  one- 
fourth  of  the  book,  deals  briefly  with  the  power  of  the  federal  government 
Qver  interstate  commerce  and  with  the  statutes  that  have  been  enacted  in  the 
exercise  of  that  power.  Part  two  discusses  in  more  detail  the  interstate,  com- 
merce act  of  1887,  the  anti-trust  law  of  1890,  the  safety  appliance  legislation 
of  1893  and  1896,  and  various  other  minor  acts  of  legislation  regarding  inter- 
state commerce.  The  latter  part  of  the  book  is  devoted  to  the  presentation 
of  information  regarding  "procedure  before  the  Interstate  Commerce  Com- 
mission." The  rules  of  practice  and  the  forms  in  proceedings  before  the 
commission  are  given,  and  a  lengthy  table  is  included  analj^zing  the  com- 
mission's rulings. 

The  volume  is  systematically  arranged,  it  is  well  proportioned  and  care- 
fully written.  It  is  both  a  good  treatise  and  a  valuable  book  of  reference. 
Mr.  Judson  has  done  an  especially  useful  service  by  preparing  this  careful 
treatise  covering  not  only  the  constitutional  and  statute  law  of  interstate 
commerce,  but  also  the  large  and  highly  important  body  of  administrative 
law  that  has  been  developed  by  the  Interstate  Commerce  Commission  since 
1887.  As  he  states,  "every  phase  of  the  complex  adjustment  of  railway  rates 
has  been  considered  by  the  commission,  and  their  rulings  in  this  infinite  variety 
of  cases  have  a  permanent  value  in  the  solution  of  the  transportation  problems 
of  the  future."  Neither  tlie  lawyer  nor  the  economist  interested  in  trans- 
portation can  afford  to  neglect  part  two  of  J\Ir.  Judson's  book. 

Emory  R.  Johnson'. 
University  of  Pennsylvania. 


Redlich,  Josef.  Local  Government  in  England.  Edited  with  additions  by 
Francis  W.  Hir.<t.  Two  Vols.  Pp.  427,  435.  Price,  21s.  each.  London: 
The  Macmillan  Company. 

Until  very  recently,  von  Gneist's  monographs  and  books  upon  English 
local  government  have  been  recognized  as  authorities  in  all  German-speaking 
countries.  In  large  measure,  his  theories  have  had  full  sway  for  over  a  gen- 
eration, and  not  until  the  work  by  Professor  Josef  Redlich,  of  the  University 
of  Vienna,  was  published  in  1901,  was  there  a  thoroughgoing  criticism  of 
them  or  a  comprehensive  work  upon  the  subject  from  the  opposite  point  of 
view.  When  this  treatise  appeared,  it  attracted  attention  and  received  favor- 
able comment  not  only  in  Austria  and  Germany,  but  in  England.  Thanks 
to  Mr.  Hirst,  Barrister  of  the  Inner  Temple,  the  book  may  now  be  had  in 
English. 

The  volumes  before  us  are  not  a  mere  translation.  Mr.  Hirst  is  a 
thorough  student  of  his  own  country,  and  the  two  volumes  he  has  written 

[757] 


146  Tlie  Annals  of  the\American  Academy 

evidence  the  scientific  character  of  his   workmanship.     As   Dr.   Redlich  him- 
self says  : 

"The  reader  will  see  that  it  is  not  a  mere  translation  of  the  German 
words  and  phrases,  but  a  real  English  book.  The  translator  has  not  only 
mastered  fully  the  difficulties  of  the  'learned  German,'  in  which  I  am  afraid 
the  book  seems  to  be  written  in  some  parts,  and  has  grasped  exhaustively  the 
ideas  of  the  author,  but  he  has  also  shown  himself  able  in  an  admirable  way 
to  express  the  opinions  of  the  German  author  in  an  original  English  form 
of  thinking." 

A  comparison  of  the  German  and  the  English  editions  shows  a  number 
of  differences.  The  English  reader  is  not  greatly  interested  in  von  Gneist's 
ideas  or  their  detailed  refutation,  and  Mr.  Hirst  has  very  greatly  condensed 
this  portion  of  the  original,  leaving  enough,  however,  to  give  the  gist  of  the 
argument.  A  similar  pruning  process  has  been  applied  to  the  portion  upon 
the  historical  development  of  political  forms  and  ideas — a  subject  more  or 
less  familiar  to  Englishmen  and  upon  which  there  is  already  a  voluminous 
literature.  Indeed,  the  policy  has  been  followed  throughout  of  condensation 
or  omission  of  discussions  upon  such  points  as  are  familiar  to  or  easily  under- 
stood by  English  readers. 

In  other  instances,  Mr.  Hirst  has  expanded  and  added  much  new  matter, 
e.  g.j  the  chapter  upon  the  territorial  basis  of  the  municipal  borough,  enlarged 
to  four  times  its  original  size.  These  additions  will  doubtless  be  more  inter- 
esting to  Englishmen  than  to  Americans,  who  care  little  for  such  anomalous__ 
conditions  as  are  described.  The  new  matter  in  the  chapters  upon  finance, 
"urban  districts,"  poor  law  administration  and  education  pleases  us  more. 
The  last  mentioned  chapter  has  been  entirely  rewritten.  In  the  German 
edition,  the  local  aspect  of  the  subject  was  dismissed  wuth  a  brief  notice  of 
three  pages ;  it  now  covers  thirteen.  This  expansion  was  rendered  necessary 
partially  by  the  education  act  of  1902,  which  was  passed  after  Dr.  Redlich 
had  completed  his  labors.  !Many  interesting  points  have  also  been  brought 
out  in  new  foot-notes,  and  a  number  which  appeared  in  the  earlier  edition 
have  been  omitted.  Mr.  Hirst  has  also  added  tables  of  the  cases  and  statutes 
cited. 

A  perfectly  natural  result  of  the  translation  and  re-writing  has  been 
the  elimination  of  errors  that  inevitably  slip  in.  For  example,  the  minimum 
of  population  which  a  town  must  have  to  become  a  county  borough  is  erron- 
eously given  by  Dr.  Redlich  to  be  100,000;  Mr.  Hirst  has  corrected  this  to 
50,000. 

In  general  outlines,  however,  the  two  works  are  entirely  similar.  The 
same  plan,  arrangement  and  scope  have  been  followed  in  each.  First  comes 
an  historical  resume  of  the  political  development  to  the  end  of  the  eighteenth 
century.  This  is  followed  by  chapters  on  the  reform  of  local  government 
from  the  development  of  radicalism  to  the  final  establishment  of  democratic 
forms  and  theories  in  recent  years.  The  constitution  and  government  of 
municipal  boroughs  are  then  dealt  w^th,  after  which  one  passes  in  the  second 
volume  to  the  county  councils,  urban  and  rural  districts,  parishes,  poor  relief 
administration  and  education.     Considerable  space  is  devoted  to  the  relation 

[758] 


Foundations  of  Sociology  147 

of  the  local  to  the  central  authorities  and  the  organization  and  methods  of 
the  central  departments  that  deal  with  local  matters.  The  work  closes  with 
an  outline  of  the  theory  of  English  local  government  and  a  criticism  of  von 
Gneist's  doctrine  of  "Self-government." 

Professor  Redlich,  and  Mr.  Hirst  following  in  his  tracks,  have  devoted 
themselves  to  what  may  be  termed  the  politico-institutional  side  of  local 
government.  Every  important  local  organism  has  been  treated,  its  origin, 
development,  organization,  functions,  efficiency  and  relation  to  other  local 
bodies  and  higher  governmental  authorities.  This  treatment  has  by  no  means 
been  confined  to  the  contents  of  statutes  and  judicial  decisions,  but  the  factors 
and  motives  which  dominate  this  machinery  and  accelerate  or  retard  its 
motion  are  fully  considered.  Take,  for  example,  the  chapter  on  "Municipal 
Electioneering  and  Municipal  Politics."  I  know  of  nothing  else  ever  pub- 
lished which  gives  such  an  accurate  and  satisfying  account  of  campaign 
methods  in  municipal  elections,  the  attitude  of  the  national  parties  in  local 
politics,  the  working  of  the  party  system  and  the  post-election  attitude  of 
successful  .candidates.  No  subject  has  been  more  frequently  misunderstood 
and  misrepresented  in  American  books  and  articles. 

The  restriction  of  the  field  to  the  anatomy  of  local  government  has  ex- 
cluded obviously  a  long  list  of  subjects  which  are  extremely  interesting,  such 
as  the  social  problems  of  city  life  and  the  relation  of  the  community  in  its 
governmental  capacity  to  economic  and  social  conditions.  But  this  fact  is 
stated  not  as  a  criticism,  for  the  boundaries  set  have  logically  been  defined, 
but  to  give  an  idea  of  the  scope  of  the  work.  To  have  handled  these  other 
subjects  of  such  vital  interest  with  the  same  degree  of  thoroughness  would 
have  required  at  least  one  additional  volume.  This  work  has  been  left  to 
other  hands. 

The  American  reader  who  uses  German  and  English  with  equal  fluency 
will  generally  find  the  English  edition  more  satisfactory:  the  view-point  is 
more  nearly  our  own.  In  certain  specific  instances,  however,  it  will  be  neces- 
sary to  consult  the  German  edition  rather  than  the  English,  as  the  tv.'o  are 
not  exactly  alike.  No  one  who  wishes  to  be  informed  accurately  upon  the 
subject,  especially  that  phase  which  is  so  prominent  now — municipal  govern- 
ment— can  afford  to  be  without  either  the  German  or  the  English  edition. 
It  is  by  far  the  best  book  upon  its  subject  that  has  appeared  in  any  language, 
and  will  receive  a  hearty  welcome  in  the  United  States. 

MiLO  R.  Maltbie. 
Nezu  York  City. 


Ross,  Edward  Alsworth.     Foundations  of  Sociology.     Pp.    xiv,  410.     -Price, 

$1.25.     New  York :  The  Macmillan  Company,  1905. 

In  this  volume  Professor  Ross  has  gathered  articles  which  have  already 
appeared  in  various  magazines ;  the  earliest,  the  chapter  on  "Mob  Mind"  from 
the  Popular  Science  Monthly  of  July,  1897;  the  latest,  "The  Value  Rank  of 
the  American   People,"  from   The  Independent,  of  November   10,   190.^.     The 

[759] 


148  The  Annals  of  the  American  Academy 

volume  is  marked  by  the  author's  well-known  versatility,  clearness  of  state- 
ment and  brilliancy  of  generalization.  The  chapters,  however,  show  that  they 
were  written  for  different  occasions.  It  is  more  than  doubtful,  too,  whether 
some  of  them  would  have  been  included  had  the  author  started  de  novo  to 
write  the  book. 

In  the  preface  it  is  stated :  "An  authoritative  body  of  social  theory  exists 
at  present  as  aspiration  rather  than  fact.  In  this  volume  the  writer  has 
ventured  on  little  beyond  the  laying  of  foundations."  In  the  mind  of  the 
reviewer  it  is  a  bit  premature  to  lay  the  foundation  until  the  stones  are  quar- 
ried. For  this  reason  I  dislike  the  title  of  the  book  and  believe  that  the 
author  could  have  found  one  far  better  fitting  the  text. 

Professor  Ross  looks  upon  sociology  as  a  general  science,  of  which 
social  morphology,  psychology,  mechanics  are  but  segments.  Those  phenom- 
ena are  social  "which  we  cannot  explain  without  bringing  in  the  action  of 
one  human  being  on  another."  In  the  first  chapter,  "The  Scope  and  Task 
of  Sociology,"  the  author  is  running  the  boundary  lines  of  the  science,  while 
in  the  second,  economics  and  sociology  are  distinguished.  In  the  chapter  on 
"Social  Laws"  some  of  the  pet  formulae  of  various  writers  are  discussed  with 
the  conclusion  that  "sociology  is  not  so  much  a  sister  science  to  politics  or 
jurisprudence,  as  a  fundamental  and  comprehensive  discipline  uniting  at  the 
base  all  the  social  sciences."  The  discussion  of  "The  Unit  of  Investigation  in 
Sociology"  is  very  suggestive  and  stimulating.  "The  bane  of  sociology  has 
been  the  employment  of  large  units,  the  comparison  in  lump  instead  of  the 
comparison  in  detail."  "It  is  better  to  look  for  the  common  features  of 
crowds  or  clans,  or  secret  societies,  or  mining  camps,  or  towns,  than  to  con- 
pare  nations."  The  real  unit  is  the  "social  process,"  not  some  "product,"  be 
the  product  "groups,"  "relations,"  "institutions,"  "imperatives,"  "uniformities." 
"The  social  forces  are  human  desires,"  which  the  author  divides  into  "natu- 
ral" (appetitive,  hedonic,  egotic,  affective,  recreative)  and  "cultural"  (relig- 
ious, ethical,  aesthetic,  intellectual).  "The  corner-stone  of  sociology  must  be  a 
sound  doctrine  of  the  social  forces." 

Seventy-three  pages  are  devoted  to  "The  Factors  of  Social  Change."  The 
line  of  cleavage  between  statics  and  dynamics  lies  in  the  distinction  between 
persistence  and  change.  It  is  time  sociologists  dropped  the  words  progress 
and  regress  and  discussed  social  cJiange.  The  growth  of  population,  wealth, 
migration,  invention  and  environmental  changes  are  the  chief  stimuli  to  social 
change.  This  chapter  is  very  valuable.  The  author  has  also  rendered  a 
service  in  his  section  of  ninety-six  pages  on  "Recent  Tendencies  in  Sociology" 
in  which  the  ideas  of  recent  writers  are  compared  and  criticised.  Chapter 
ten,  "The  Causes  of  Race  Superiority"  was  the  annual  address  before  the 
American  Academy  of  Political  and  Social  Science  in  1901,  and  was  printed 
in  the  Annals,  of  July,  1901.  The  last  article  on  "The  Value  Rank  of  the 
American  People"  is  a  brief  essay  to  show  that,  unless  care  be  taken,  con- 
tinued immigration,  the  absence  of  free  land,  the  destructiveness  of  city  life 
may  seriously  threaten  the  so-called  "American  spirit." 

In  brief,  these  are  the  topics  treated.  No  one  interested  in  the  devel- 
opment of  social   theory,   or   in   the  understanding  of  social  phenomena  can 

[760] 


Our  Philippine  Problem  149 

afford  to  leave  it  unread.     The  volume  belongs  in  "The  Citizen's  Library," 
edited  by  Professor  R.  T.  Ely. 

Carl  Kelsey. 
University  of  Pennsylvania. 


Willis,  Henry  Parker.     Our  Philippine  Problem.     Pp.  xiii,  479.     Price,  $1.50. 

New  York :  Henry  Holt  &  Co.,  1905. 

It  needs  to  be  stated  at  the  beginning  that  this  book  is  frankly  critical 
of  our  Philippine  policy,  and  particularly  of  the  administration  thereof.  One 
who  holds  the  views  that  the  author  evidently  entertains  in  regard  to  "im- 
perialism" could  hardly  write  otherwise.  Admitting  that  the  political  ethics 
of  imperialism  is  an  open  question  we  can  only  ask  our  author  to  avoid 
censoriousness.  Opinion  will  surely  be  divided  as  to  whether  he  has  suc- 
ceeded in  this  or  not,  but  since  the  division  will  probably  traverse  political 
lines  of  cleavage,  we  may  accept  it  as  considerably  more  than  a  brief  of  the 
attorney  for  the  prosecution.  So  much  can  be  stated  at  the  beginning.  Fur- 
ther perusal  and  analysis  of  the  book  will  convince  many  readers,  perhaps 
unwillingly  too,  that  the  criticisms  and  charges  it  contains  are  not  only  seri- 
ous and  grave  in  the  extreme,  but  that  their  authenticity  seems  unquestionable. 
Let  us  particularize. 

"It  is  obvious,"  he  says,  "that  an  absolute  government,  such  as  exists 
to-day  in  the  Philippines,  cannot  lay  claim  to  merit  as  the  representative  of 
popular  will,  and  must  rest  for  its  justification  (so  far  as  any  is  possible) 
upon  results.  It  must  stand  as  a  despotism,  and  those  who  believe  in 
despotism  anywhere  applied  can  warrant  such  belief  only  on  the  ground  that 
it  is  benevolent."  The  assertion  that  it  is  an  absolute  government,  a  despot- 
ism, he  supports  by  the  following  evidence : 

"The  powers  now  actually  in  the  hands  of  the  civil  governor  are — i.  All 
executive  authority ;  2.  Leadership  of  the  'legislative'  body  and  power  to  pre- 
scribe its  rules  and  mode  of  operation,  including  the  practical  power  to  initi- 
ate all  legislation ;  3.  Appointment  of  all  officers  of  the  government  outside 
of  the  civil  service,  including  judges  of  the  first  instance;  4.  Practical  direc- 
tion of  the  military  forces  in  their  operation  and  distribution." 

The  so-called  "legislative  body"  or  commission  acts  as  no  check  to  the 
executive,  as  it  is  completely  subservient  thereto.  "It  should  be  understood 
that  the  islands  are  not  now  under  civil,  but  under  military,  rule,"  the  ruler 
being  required  to  report  regularly  to  the  Secretary  of  War,  and  in  no  other 
way  is  information  obtainable.  This  is  certainly  a  condition  of  despotism; 
is  it  justified  by  the  results? 

Professor  Willis  answers,  no ;  but  he  is  careful  to  state  that  the  present 
officials  are  not  to  be  held  responsible  for  a  situation  necessarily  resulting 
from  our  military  occupation  of  the  islands.  Among  the  evidences  that  our 
despotism  is  not  benevolent  in  its  results  we  may  take  time  to  notice  the 
following : 

First,  the  legal  and  judicial  system  rests  upon  three  main  supports:  (a) 
Spanish  law;    (b)   American  procedure;    (r)    legislation  by  the  commission. 

[761] 


150  The  Annals  of  the  American  Academy 

We  have  an  English-speaking  governing  class  struggling  with  a  legal  system 
predominantly  Spanish,  in  an  attempt  to  administer  justice  to  a  population 
speaking  a  score  of  dialects.  Native  judges  must  necessarily  be  retained  in 
courts  of  the  first  instance.  This  involves  the  elimination  of  trial  by  jury. 
Moreover,  limitations  have  been  thrown  about  the  writ  of  habeas  corpus. 
As  a  result,  "it  is  a  fact  that  there  are  now  men  confined  in  prisons  through- 
out the  archipelago,  arrested  without  warrant  and  entirely  ignorant  why  they 
have  been  detained."  "Under  Spanish  law,  officers  who  detained  men  in 
prison  more  than  twenty-four  hours  without  presenting  them  before  a  suit- 
able judicial  officer  and  showing  cause  for  their  arrest  were  ipso  facto  guilty 
of  the  severely  penalized  crime  of  illegal  detention." 

The  second  point  in  the  indictment  of  the  legal  and  judicial  system  is  the 
servility  of  the  judiciary  to  the  commission.  "The  truth  is,"  he  says,  "that 
in  all  criminal  cases  the  judiciary  has  cooperated  so  closely  with  the  com- 
mission as  to  be  practically  nothing  more  than  a  mere  tool  in  the  hands  of 
that  body."  Appointed  as  they  are,  "it  would  require  unusual  strength  of 
character  for  judges  to  resist  the  pressure  to  which  they  are  likely  to  be  sub- 
jected. They  cannot  help  recognizing  the  circumstances  under  which  they 
were  selected,  the  fact  that  they  receive  larger  salaries  than  they  could 
probably  get  elsewhere,  and  that  certain  things  are  expected  of  them."  "A 
judiciary,  pliant,  serviceable,  bowing  the  knee  to  the  executive,  has  been 
built  up." 

Second,  the  control  of  public  opinion  in  the  Philippines  is  something  to 
which  Americans  are  not  accustomed  at  home.  "It  seems  that  the  organs  of 
control  are  so  eflfective  and  the  forces  making  for  subordination  and  silence 
so  strong,  that  they  are  irresistible."  The  sources  of  official  information  are 
closed  to  the  public,  the  aid  of  the  sedition  act  is  invoked  to  suppress  freedom 
of  speech,  teachers  are  cautioned  "to  exercise  such  care  as  the  situation 
demands,"  "the  pulpit  and  the  stage  have  been  subjected  either  to  unofficial 
or  official  surveillance,"  and  finally,  notwithstanding  official  assurances  that 
"there  is  in  the  islands  to-day  freedom  of  speech,  of  the  press,  of  assemblage 
and  of  petition,"  specific  evidence  to  the  contrary  is  furnished. 

This  in  itself  is  not  so  iniquitous  as  it  might  seem,  unless  it  has  the 
result  of  creating  distrust  and  disaffection  among  the  natives.  Unhappily, 
more  or  less  caution,  secrecy,  surveillance  and  general  inhibition  of  news 
relating  to  the  public  must  be  characteristic  of  the  government  of  a  depend- 
ency, and  the  question  is  not  so  much  in  any  case  whether  it  exists,  as 
whether  it  is  excessive.  Professor  Willis  leaves  no  doubt  that  it  does  exist 
Moreover,  the  evidence  he  gives  as  to  its  being  excessive  is  sufficient  to 
silence  criticism  from  disinterested  sources  not  on  the  ground.  One  could 
only  say  that  it  is  possible  he  does  not  take  into  full  account  the  natural 
difficulties  of  the  situation. 

Many  other  topics  are  taken  up  and  treated  with  considerable  detail, 
such  as  local  government,  the  constabulary,  political  parties,  the  church  prob- 
lem, American  education  in  the  Philippines,  social  conditions,  economic  legis- 
lation, exploitation  of  the  Philippines,  rural  and  agricultural  conditions,  etc. 
In  style  it  is  unusually  readable  and  entertaining. 

[762] 


Our  Philippine  Problem  151 

It  is  a  book  which  invites  investigation,  and  no  doubt  it  will  get  it;  that 
too,  probably,  in  no  gentle  mood  at  times.  Nevertheless,  allowing  for  legiti- 
mate differences  of  opinion  upon  the  fundamental  subject  of  imperialism,  the 
principal  questions  it  raises  all  the  way  through  are  merely  questions  of  degree. 
Hence  the  effect  should  be  simply  that  of  sane,  healthful  criticism,  whatever 
asperities  it  may  raise  at  first.  When  an  author  states  himself  so  frankly  he 
should  arouse  no  resentment  from  those  who  are  equally  above  board  in 
their  own  conduct,  even  if  his  strictures  are  severe. 

J.  E.  Conner. 
Washington,  D.  C. 


Parks  and  Public  Playgrounds 

THE  RECORD  OF  A  YEAR'S  ADVANCE 

A  SYMPOSIUM 


CHICAGO 

By  Hugo  S.  Grosser,  Esq.,  City  Statistician,   Chicago,   111. 

Although  the  park  system  of  Chicago  is  almost  as  old  as  the  city  itself, 
its  growth  has  in  no  way  kept  pace  with  the  growth  of  the  city,  and  to-day 
the  great  city  of  Chicago,  with  its  area  of  igo  square  miles,  has  a  total  park 
area  of  only  2,463  acres,  a  smaller  area  per  capita  of  the  population  than  that 
of  any  other  of  the  larger  cities  in  this  country. 

Chicago's  first  park  was  established  in  1839,  two  years  after  the  incor- 
poration of  the  city,  and  consisted  of  one-half  a  square  on  the  lake  front, 
extending  to  Michigan  avenue.  During  the  next  thirty  years  additions  were 
made  to  the  park  system  by  the  gift  of  small  areas  throughout  the  city,  and 
there  were  ultimatelj'  some  forty-four  public  and  private  parks  in  existence 
when  the  first  systematic  plan  was  inaugurated  for  the  establishment  of 
Chicago's  park  system.  Chicago's  parks  are  not  under  the  jurisdiction  of  the 
city  government,  but  are  governed  by  three  different  park  boards,  created 
through  acts  of  the  state  legislature  from  1869  to  1871.  The  Lincoln  Park 
Commissioners  are  in  charge  of  Lincoln  Park — which  had  been  established 
by  the  abolition  of  a  cemetery  as  early  as  i860,  while  the  rest  of  that  park 
was  made  from  sand  wastes  and  swamps — and  the  boulevard  system  and 
smaller  parks  on  the  north  side  of  the  city;  the  West  Chicago  Park  Com- 
missioners rule  over  the  parks  on  the  west  side,  namely,  Douglas,  Humboldt 
and  Garfield  Parks,  while  the  South  Park  Commissioners  are  in  charge  of  the 
park  area  on  the  south  side  of  the  city,  the  largest  parks  of  which  are 
Washington  and  Jackson  Parks.  The  first  two  commissions  are  appointed 
by  the  governor  of  the  state,  while  the  South  Park  Commissioners  are  elected 
by  the  judges  of  Cook  County.  These  park  boards  are  absolutely  independent 
of  any  other  governing  body,  and  levy  their  own  taxes.  For  many  years  it 
has  been  sought  to  do  away  with  this  multiplicity  of  taxing  bodies,  and  in 
a  constitutional  amendment  adopted  by  the  people  in  1904  provision  was  made 
for  a  consolidation,  but  as  yet  the  state  legislature  has  not  passed  any  law 
to  carry  into  effect  this  provision. 

Besides  the  parks  controlled  by  these  three  park  boards,  the  city  of 
Chicago,  through  its  Department  of  Public  Works,  has  jurisdiction  over  some 
thirty-six  small  park  spaces  and  triangular  plots  at  street  intersections.     Some 

[764] 


Parks  and  Public  Playgrounds  153 

of  these  have  been  transferred  to  the  control  of  the  park  boards.  The  expense 
for  the  maintenance  and  improvement  of  the  so-called  "city"  parks  is  met  by 
annual  appropriation  of  the  city  council.  The  boulevard  system  in  con- 
nection with  the  chain  of  parks,  which  is  being  extended  from  year  to  year, 
is  also  in  charge  of  the  various  park  boards,  the  original  cost  of  construction 
being  defrayed  by  special  assessment  on  the  abutting  property,  while  the  cost 
of  their  maintenance  comes  out  of  the  general  park  and  boulevard  taxes. 

A  few  years  ago  Chicago  experienced  an  awakening  to  its  park  deficiencies, 
due  to  the  efforts  of  the  Special  Park  Commission  to  obtain  small  parks  and 
playgrounds  in  the  congested  districts  of  the  city.  This  commission  is  ap- 
pointed by  the  mayor,  and  consists  of  nine  aldermen  and  six  citizens.  By 
means  of  a  series  of  bills  passed  by  the  General  Assembly  in  1901,  1903 
and  1905,  the  three  park  boards  mentioned  have  received  authority  to  is- 
sue $11,000,000  in  bonds  for  various  park  and  playground  extension  plans. 
This  vast  sum  is  divided  among  the  park  boards  as  follows :  Half  a  million 
dollars  for  small  parks  and  playgrounds  in  the  densely  populated  portions  of 
the  north  side ;  one  million  dollars  for  the  exteiision  of  Lincoln  Park  by 
reclaiming  215  acres  of  submerged  land  along  the  lake  shore;  one  million 
dollars  for  small  parks  and  playgrounds  on  the  west  side;  two  million  dol- 
lars for  the  general  improvement  of  the  large  parks  on  the  west  side,  which 
have  been  allowed  to  fall  into  a  state  of  decay  through  the  ruling  hand  of  the 
politicians,  mismanagement  and  extravagance  in  keeping  a  useless  pay  roll ; 
one  million  dollars  for  small  parks  and  playgrounds,  not  exceeding  ten  acres, 
on  the  south  side ;  three  million  dollars  for  the  completion  of  Grant  Park  on 
tlie  lake  front  and  the  creation  of  larger  parks  than  ten  acres  on  the  south 
side ;  two  million  five  hundred  dollars  for  the  completion  and  improvement  of, 
and  additions  to  the  larger  park  system  on  the  south  side.  Since  1901  fifteen 
new  parks  have  been  acquired,  ranging  in  area  from  six  and  a  half  to  three 
hundred  and  twenty-two  acres,  and  aggregating  seven  hundred  acres,  not 
included  in  the  area  quoted  above.  These  are  scattered  over  the  great  south 
side  from  Twenty-fifth  to  One  Hundred  and  Thirteenth  street,  and  from 
Central  Park  avenue  to  Lake  Michigan.  The  land  has  cost  one  million  eight 
hundred  thousand  dollars,  and  the  improvements  thus  far  two  million  five 
hundred  and  seventy-five  dollars. 

The  Lincoln  Park  extension  work  is  in  progress,  but  no  start  has  been 
made  to  acquire  the  small  parks  on  account  of  indifference  on  the  part  of  the 
park  board,  masked  behind  legal  technicalities.  The  West  Park  Board  pur- 
sued a  masterly  policy  of  inaction  as  to  small  parks  for  several  years,  and 
when  defects  were  discovered  in  their  act,  a  new  one  was  passed  last  winter. 
With  a  reconstructed  board  of  business  men,  a  fresh  start  will  be  made  this 
winter  to  get  the  much  needed  small  parks,  after  a  vote  is  taken  on  the  bond 
issue  at  the  November  election. 

The  most  interesting  side  of  this  park  extension  on  the  south  side  is  its 
social  and  educational  aspect.  Each  new  park  has,  or  will  have  when  finished, 
as  its  central  feature,  a  field  house  or  neighborhood  center,  comprising  in  each 
case  a  well  equipped  gj^mnasium  for  men  and  boys,  another  for  women  and 
girls,  shower  and  phmge  baths  for  each  sex,  a  reading  room,  a  lunch  counter, 

[765] 


154  ^^^^  Annals  of  the  American  Academy 

two  or  three  small  club  rooms,  and  a  large  assembly  hall.  Adjacent  to  each 
central  building  are  a  band  stand,  with  surrounding  seats,  broad  concrete 
walks,  and  spaces  for  roller  skating,  out-door  gymnasiums  for  men,  women 
and  children,  all  in  separate  sections,  a  large  swimming  pool  with  showers 
and  dressing-rooms.  The  public  library  board  has  arranged  to  establish 
branch  libraries  in  several  of  these  buildings.  Each  park  is  also  equipped  with 
athletic  fields  for  ball  games,  a  skating  area  and  place  for  toboggan  slides. 

These  are  not  the  only  -plans  for  extending  the  park  system  of  Chicago, 
and  a  far  more  ambitious  scheme  is  being  agitated  at  present.  Last  December 
the  Special  Park  Commission  issued  an  elaborate,  illustrated  report,  sug- 
gesting a  scheme  for  a  metropolitan,  or  outer  belt  park  system  in  city  and 
county,  following  the  scheme  of  the  Boston  Metropolitan  Park  Commission. 
It  is  proposed  to  acquire  a  chain  of  city  and  country  park  areas,  mostly  natural 
wooded  lands  and  banks  of  rivers  and  lakes,  aggregating  37,000  acres.  A  bill 
providing  for  the  organization  of  a  forest  preserve  district  was  passed  by  the 
last  legislature,  and  the  question  will  be  voted  upon  at  the  November  election. 
The  proposed  district  comprises  nearly  all  of  Cook  County.  The  commission 
is  to  be  appointed  by  the  governor,  and  will  have  authority  to  issue  bonds  to 
the  extent  of  four  million  three  hundred  and  sixty  thousand  dollars  without  a 
referendum,  and  thirteen  million  dollars  after  getting  a  referendum  vote  of  the 
people.  The  commission  will  also  be  authorized  to  raise  about  four  hundred 
and  twenty-five  thousand  dollars  a  year  for  maintenance. 

There  are  now  nine  municipal  playgrounds — three  on  each  side  of  the 
city — in  thickly  populated  districts,  which  are  all  in  charge  of  the  Special 
Park  Commission.  The  funds  for  these  playgrounds  are  obtained  from  the 
city  council's  annual  appropriation,  or  by  private  contributions  of  land,  money 
and  equipment.  In  some  cases  the  land  had  been  previoush^  owned  by  the 
city,  in  others  the  free  use  had  been  given  for  a  fixed  period,  or  until  the  site 
is  sold,  so  that  there  is  no  security  of  tenure  except  in  three  playgrounds. 
Miscellaneous  apparatus  is  provided  for  children  of  all  ages,  open  fields  for 
baseball,  football,  basket  ball,  running  and  jumping;  besides  cinder  tracks, 
shower  bath  house  and  skating  ponds,  provided  at  each  ground  where  the 
area  is  sufficient.  Lack  of  funds  has  prevented  the  city  from  equipping  its 
plaj-grounds  in  the  elaborate  manner  described  as  to  the  south  side  small  parks, 
yet  more  than  one  million  children  and  young  men  and  women  visited  the 
playgrounds  last  year.  The  Merchants'  Club  has  provided  a  fund  each  year 
with  which  prizes  are  purchased  and  awarded  to  young  athletes  in  competi- 
tive sports,  and  to  younger  children  excelling  in  raffia  weaving  and  other 
handiwork  during  the  summer  vacation.  The  city  maintains  a  general  director 
of  athletics  and  gymnastics,  who  also  acts  as  superintendent,  besides  a  director 
at  each  ground,  women  kindergartners  for  the  children  during  the  summer 
vacation.  Track  teams,  teams  for  baseball,  football  and  basket  ball  are  organ- 
ized among  the  boys  at  the  various  grounds,  and  high-class  games  are  played 
with  outside  teams.  The  commission  provides  free  uniforms  for  the  baseball 
and  football  teams. 

Several  sites  have  been  secured  on  the  west  and  north  sides  of  the  city 
for  playgrounds,  but  are  waiting  for  equipment  funds.     The  commission  has 

[766] 


Parks  and  Public  Playgrounds  155 

just  issued  an  appeal  to  the  public,  asking  for  donations  of  money  and  land 
and  setting  forth  the  need  for  more  playgrounds,  especially  on  the  west  side. 

In  addition  to  the  municipal  playgrounds,  there  are  half  a  dozen  play- 
grounds conducted  as  philanthropic  enterprises  by  social  settlements  and 
other  organizations.  The  Roman  Catholic  Church  people  have  also  established 
several  plajgrounds  in  connection  with  their  parochial  schools. 

The  question  of  public  baths  has,  during  the  last  few  years,  received  con- 
siderable attention  on  the  part  of  the  city  authorities.  At  present  the  city  has 
under  contract  for  completion  within  a  few  months,  or  in  operation,  twelve 
municipal  bath  houses,  scattered  throughout  the  city  in  the  poorer  districts. 
They  are  under  the  control  of  the  Department  of  Health,  as  are  also  three 
bathing  beaches  along  the  lake  shore.  These  municipal  bath  houses,  seven  of 
which  were  in  operation  in  1904,  were  in  that  year  attended  by  650,000  persons, 
and  the  Department  of  Health  expended  for  their  maintenance  and  opera- 
tion the  sum  of  $23,519.24.  A  bathing  beach  is  also  maintained  at  Lincoln 
Park. 


BUFFALO 

By  Prof.  A.  C.  Richardson,  Buffalo,  N.  Y. 

Buffalo  established  its  first  municipal  playground  in  the  summer  of  1901, 
using  for  that  purpose  a  part  of  the  park  system  known  as  The  Terrace,  which 
is  situated  in  the  midst  of  a  densely  populated  district  downtown.  This  play- 
ground is  under  the  charge  of  the  Park  Commissioners,  while  the  others  are 
managed  by  the  Department  of  Public  Works.  Three  additional  playgrounds 
were  established  in  1902  and  two  more  in  1903,  so  that  there  are  now  six. 
Their  areas  are  as  follows : 

Terrace    Park    57,6oo  sq.  ft. 

Johnson   Street     73-392 

Broadway  Market   72,820 

Hamburg  Canal   106,730 

Bird  Avenue   45,oii 

Sidway  Street  46,900 

Total    402,453      " 

All  these  grounds  are  on  city  property  except  that  on  Sidway  street,  for 
which,  only  a  nominal  rent  is  paid,  consisting  of  the  current  taxes  on  it.  The 
Bird  avenue  ground  has  the  great  advantage  of  being  located  next  to  a  pub- 
lic school,  which  of  course  is  the  ideal  location,  as  the  basement  of  the  school 
furnishes  room  for  the  storage  of  apparatus  and  for  shower  baths,  which  are 
an  indispensable  adjunct.  Shelter  houses  have  been  erected  for  these  pur- 
poses on  all  the  other  grounds. 

The  annual  appropriation  for  the  maintenance  of  these  grounds  is  between 

[767] 


156  The  Amials  of  the  American  Academy 

$11,000  and  $12,000,  which  inckides  the  salaries  of  two  directors  for  each 
ground.  These  twelve  directors  compose  the  Playground  Association,  and 
meet  weekly  to  file  reports  of  the  attendance  and  games  played,  and  to  regu- 
late in  general  the  policy  of  the  playgrounds.  There  should  be,  and  probably 
at  some  time  will  be,  a  general  director  to  supervise  all  the  grounds  and  see 
that  the  various  employees  do  their  work  properly.  The  grounds  are  open 
from  about  the  first  of  June  to  some  time  in  November,  and  the  average 
monthly  attendance  in  1903-04  was  130,770.  For  three  years  past  an  annual 
inter-playground  meet,  known  as  the  Buffalo  Civic  Games  has  been  held,  at 
which  gold,  silver  and  bronze  medals  w^ere  awarded  to  the  successful  com- 
petitors; but  this  year  each  plaj^ground  had  its  own  separate  meet  instead. 

The  equipment  of  the  Bird  Avenue  ground,  which  is  typical  of  them  all 
and  will  serve  to  indicate  the  nature  of  the  games  played,  is  as  follows :  Cin- 
der track,  horizontal  bars,  trapeze,  swings-  (16),  testers,  jumping  ground, 
basket-ball  courts  (2),  hand-ball  court,  sand  boxes,  babies'  sw-ings  and  May- 
poles. 

The  following  extract  from  a  report  made  to  the  Charity  Organization 
Society  by  its  Committee  on  Municipal  Playgrounds  in  1903,  will  serve  to 
indicate  the  nature  of  the  effect  produced  upon  the  immediate  neighborhood 
by  the  opening  of  a  playground.  The  conversations  quoted  are  vouched  for 
as  actual  occurrences : 

"The  improvement  in  playground  districts  has  been  marked.  The  imme- 
diate neighbors,  usually  at  first  hostile,  soon  became  warm  friends  of  the  play- 
ground. A  sense  of  community  of  interest  grows  up.  On  returning  a  stolen 
bat  a  small  boy  replied  to  the  director's  questioning,  "Well,  you  see,  Mister, 
I  thought  I  was  stealing  it  from  you,  but  when  I  thought  it  over  I  knowed  it 
belonged  to  all  the  boys  as  well  as  me;  dat's  why  I  brought  it  back."  Crap- 
shooting,  never  permitted  on  the  playgrounds,  has  nearly  disappeared  from 
their  vicinity.  Large  numbers  of  boys  have  been  induced  by  the  directors 
to  quit  cigarette  smoking,  as  not  conducive  to  athletic  attainments.  Two 
years  ago  a  prominent  west-side  woman,  who  owned  some  houses  on  the 
east  side,  found  on  inspecting  her  property,  that  the  windows  were  not  broken 
as  they  had  been  other  years.  She  made  inquiry  as  to  the  reason  for  the 
change,  and  learned  that  a  playground  had  shortly  before  been  established  in 
the  neighborhood.  Since  then  she  has  made  strong  pleas  for  playgrounds 
before  the  aldermen.  A  boy  on  the  playground  pointing  to  a  portly  policeman, 
said,  "Dere  goes  old  Battles,  de  cop.  He  won't  arrest  us  any  more  now,  as 
youse's  got  a  playground  for  us  kids.  De  playground  is  good  for  him  as  well 
as  us."  "How's  that,"  asked  the  director.  "Why  can't  ye  see,  old  Battles 
used  to  be  thin  as  er  match  when  he  chased  us  kids,  but  now  he's  big  as  er 
barrel  'cause  he  ain't  got  no  work  to  do." 

Public  Baths. 

The  following  extracts  from  official  reports  of  the  Health  Department 
furnish  a  complete  history  of  the  municipal  baths  of  Buffalo.  (Monthly  Re- 
port, April,  1900)  : 

[768] 


Parks  CD  id  Public  Playgrounds  157 

"In  the  winter  of  1894-95,  a  sub-committee  of  the  Buffalo  Charity 
Organization  Societ3^  which,  through  personal  investigation  of  the  tenement 
house  districts,  became  familiar  with  the  fundamental  principles  which 
underlie  the  need  of  poor  families  that  lack  home  conveniences,  and  of  the 
working  classes  that  require  bathing  facilities  as  a  common  decency  of 
life,  took  under  consideration  the  question  of  establishing  a  free  municipal 
bath  house.  This  committee  was  composed  of  Dr.  John  H.  Pryor,  William 
A.  Douglas,  and  Williams  Lansing,  assisted  by  the  Health  Commissioner.  Its 
members,  on  more  than  one  occasion,  aided  and  sustained  those  entrusted  with 
the  administration  of  the  laws  affecting  public  health,  and  through  the 
united  efforts  of  this  committee  and  the  Department  of  Health,  the  proposition 
was  brought  before  the  Common  Council,  and  advanced  to  a  stage  where 
the  establishment  of  a  free  public  bath  by  the  municipality  was  an  assured 
fact,  and  just  as  the  provisions  became  favorable,  and  the  necessary  point 
attained,  the  State  Legislature  enacted  the  subjoined  measure  entitled  'An 
Act  to  Establish  Free  Public  Baths  in  Cities,  Villages  and  Towns.'  " 

Chapter  351 — Laws  of  New  York  State,  1895.  Section  i. — "All  cities  of 
the  first  and  second  class  shall  establish  and  maintain  such  number  of  public 
baths  as  the  local  board  of  health  may  determine  to  be  necessary;  each  bath 
shall  be  kept  open  not  less  than  fourteen  hours  for  each  day,  and  both  hot 
and  cold  water  shall  be  provided.  The  erection  and  maintenance  of  river 
or  ocean  baths  shall  not  be  deemed  a  compliance  with  the  requirements  of  this 
section.  Any  city,  village  or  town  having  less  than  50,000  inhabitants  may 
establish  and  maintain  free  public  baths,  and  any  city,  village  or  town  may 
loan  its  credit  or  may  appropriate  of  its  funds  for  the  purpose  of  establishing 
such  free  public  baths." 

"The  constitution  of  the  State  of  New  York  recognizes  cities  of  the  first 
class  as  having  a  population  of  250,000  or  over ;  cities  of  the  second  class 
50,000  or  more,  but  less  than  250,000;  and  cities  of  the  third  class  less  than 
50,000.  Money  was  now  appropriated,  plans  were  ordered,  site  selected,  con- 
tracts let,  and  ordinances  providing  for  attendants  and  mangement  passed, 
so  that  by  January  i,  1897,  the  first  absolutely  free  municipal  bath  house  in 
the  world  was  established,  completed  in  every  detail  and  put  into  full  and 
successful  operation.  It  is  officially  known  as  Public  Bath  House  No.  i. 
It  is  not  only  free,  but  open  on  every  day  in  the  year  from  7  a.  m.  to  9  p.  m., 
excepting  on  Sundays  and  holidays,  when  those  requiring  a  bath  must  observe 
the  hours  from  7  to  10  a.  m.  There  is  absolutely  no  charge  for  its  use, 
no  restrictive  classification  of  users,  soap  and  towels  are  gratuitous,  with  an 
unlimited  supply  of  water,  both  hot  and  cold,  the  only  restriction  imposed 
being,  necessarily,  one  of  time,  namely,  that  bathers  cannot  occupy  an  apart- 
ment longer  than  twenty  minutes.  Additionally,  facilities  are  afforded  to 
wash  and  dry  underclothing,  so  that  the  equipment  of  the  establishment  sends 
forth  those  which  patronize  it  cleansed  both  in  person  and  clothing.  This 
is  at  variance  with  the  customs  that  prevail  at  the  European  municipal  bath 
houses  where,  in  every  instance,  for  equal  bathing  facilities,  a  fee  is 
demanded. 

"This  bath  is  located  in  Police  Precinct  No.  i,  which  has  an  area  of  only 

[769] ! 


IS8 


The  Annals  of  the  American  Academy 


0.86  square  miles  or  about  2  per  cent,  of  the  entire  area  of  Buffalo,  yet, 
according  to  the  police  census  of  1895,  it  has  a  population  of  20,587  or  six 
per  cent,  of  the  entire  population,  and  this,  notwithstanding  the  fact  that 
a  very  large  portion  of  the  precinct  is  taken  up  by  railroad  tracks,  the  Ter- 
race, canal  docks,  depots,  public  buildings,  stores  and  manufacturing  establish- 
ments. 

Table  of  Baths  Given. 


Year. 

1897. 

189S. 

1899- 

1900. 

1901. 

1902. 

1903. 

1904. 

Bath  House  No.  i  .  . 
Opened  Jan.  i,  1S97. 

76,873 

79.3S1 

81,793 

86795 

89,112 

77,675 

78,343 

77.051 

Bath  Plouse  No.  2  . . 

145. 143 

115,975 

108,281 

u  7.523 

Opened  Jan.  2,  1901 . 

Cost  and  Maintenance — Public   Bath  Houses  Nos.   i  and  2. 

No.  I.  No.  2. 

Cost  of  land $6,500.00  $2,600.00 

Cost  of  building 8,000.00  15,000.19 

Cost  of  equipment  300.00  56340 


$14,800.00        $18,163.59 


Salary  of  keeper $500.00 

Salary  of  matron  400.00 

Salary  of  assistant  keeper  480.00 

Salary  of  firemen,  two,  each  $600 

Coal  and  wood  '1,100.00 

Furnishing  and  laundrying  towels    380.79 

Soap   233.22 

Incidentals 21.22 

$3>ii5-23 
Credit  by  waste  soap  returned 33-o6 

$3,082.17 


$500.00 
400.00 
480.00 
1,200.00 
2,050.03 
567.52 
275-52 
119.31 

$5,592.38 
32.58 

$5,559.80 


The  popularity  of  these  aids  to  sanitation  is  very  evident  from  the  tables 
of  baths  given.  In  fact,  so  popular  are  they,  that  they  are  inadequate  to  fill 
the  demands  made  upon  them,  and  provision  should  be  made,  in  the  very  near 
future,  for  at  least  one  additonal  bath  house." 

The  facilites  for  out-door  bathing  in  summer  in  Buffalo  are  not  good. 
Owing  to  shortsightedness  in  the  past  the  lake  shore  is  now  accessible  in  but 

1  Estimated  steam  furnished  No.  i  by  Municipal  Building. 

[770] 


Parks  and  Public  Playgrounds  159 

very  few  spots,  and  these  can  be  reached  only  after  crossing  railroad  tracks. 
At  two  of  them,  however,  the  city  maintains  cheap  wooden  dressing-rooms 
under  the  charge  of  a  caretaker,  who  rents  soap,  towels  and  bathing  trunks 
for  a  small  fee.  The  contemplated  changes  in  the  water  supply  system,  how- 
ever, include  plans  for  an  outdoor  swimming  pool  similar  to  that  now  in  use 
at  Erie,  Pa.  But  it  is  probable  that  this  will  not  be  constructed  for  several 
years. 


WASHINGTON,  D.  C. 

By   George  S.  Wilson,   Esq.,   Secretary  Board  of  Charities  of  the  District 

of  Columbia. 

There  is  no  material  change  in  the  park  system  proper  in  the  District 
of  Columbia  since  my  notes  of  last  year.  Considerable  progress  has  been 
made,  however,  in  the  effort  to  develop  public  playgrounds  in  the  small 
parks  and  in  the  yards  of  the  public  school  buildings.  For  three  years 
the  effort  to  conduct  public  playgrounds  was  carried  on  by  a  volunteer 
committee  without  aid  from  the  public  treasury.  Last  year  official  endorse- 
ment was  given  to  the  movement  to  the  extent  of  an  appropriation  of  $3,500 — 
$1,500  for  the  equipment  of  public  playgrounds  in  school  yards  and  $2,000 
for  playgrounds  not  connected  with  public  schools.  The  major  portion  of 
the  burden,  however,  was  still  borne  by  private  contributions. 

The  playground  movement  was  first  started  in  Washington  in  the  sum- 
mer of  1903,  and  during  that  summer  six  playgrounds  were  maintained;  in 
1904  eleven  were  in  operation,  and  in  1905  nineteen  were  maintained.  Of  the 
nineteen  maintained  during  the  past  year  eleven  were  in  public  school  yards 
and  eight  on  public  reservations  and  vacant  lots.  A  trained  supervisor,  Dr. 
Henry  S.  Curtis,  of  New  York  City,  was  employed  for  six  months  to  direct 
the  work.  His  time  was  occupied  largely  in  selecting  and  training  kinder- 
gartners  and  athletic  directors,  whom  the  committee  found  it  necessary  to 
provide  for  the  proper  supervision  of  the  work.  The  committee  seems 
now  to  be  convinced  that  public  playgrounds  cannot  be  made  successful 
without  competent  directors.  They  look  upon  a  playground  without  a  director 
as  being  almost  as  bad  as  a  school  without  a  teacher. 

Much  greater  interest  was  shown  in  the  movement  during  the  past 
summer  than  during  the  preceding  years.  Athletic  contests  we^e  held 
throughout  the  summer  at  the  various  grounds  and  between  representatives 
from  the  different  grounds,  and  at  the  end  of  the  season,  on  September 
8  and  9,  field  days  were  held.  The  successful  contestants  in  these  final  events 
received  medals, — gold  medals  for  first  prizes,  silver  medals  for  second,  and 
bronze  medals  for  third.  A  banner  was  given  to  each  winning  team,  and  a 
special  prize  banner,  the  gift  of  one  of  the  local  newspapers,  w-as  presented 
to  the  team  winning  the  largest  total  number  of  points.  Separate  play- 
grounds were  conducted  for  white  and  for  colored  children,  and  separate  field 
days  were  held.  The  local  committee  now  feels  that  the  importance  of  the  play- 
ground movement  has  been  sufficiently  demonstrated  to  warrant  generous  appro- 

[771] 


i6o  The  Annals  of  the  American  Academy 

priation  of  public  funds  for  its  maintenance,  and  an  effort  will  be  made  this 
winter  to  secure  from  Congress  a  larger  appropriation  for  the  maintenance  of 
the  work.  An  effort  will  also  be  made  to  secure  funds  to  purchase  and 
equip  one  small  park  playground.  It  is  the  policy  of  the  committee  to  urge 
upon  the  city  the  acquisition  of  small  parks  to  be  used  as  playgrounds  in 
the  various  crowded  sections,  and  thej'  are  urging  an  appropriation  this  winter 
for  the  first  of  such  playgrounds,  which  they  hope  to  make  a  model  and  use 
as  an  argument  for  the  acquirement  of  others. 


SEATTLE 

By  Prof.  J.   Allen   Smith,  University  of  Washington,    Seattle. 

The  first  step  looking  toward  the  acquisition  of  land  for  park  purposes 
was  taken  by  the  municipal  authorities  of  Seattle  in  1884.  Little  was  done, 
however,  during  the  following  decade,  and  not  until  about  1897  did  the  need 
for  public  parks  begin  to  receive  serious  consideration.  Since  this  date  the 
city  has  purchased  three  tracts  of  land — Woodland  Park,  containing  196 
acres;  Washington  Park,  with  an  area  of  128  acres,  and  City  Park,  of  125 
acres.  Woodland  Park,  situated  in  the  northern  part  of  the  city,  is  a  beautiful 
piece  of  propert}-,  having  a  frontage  of  over  half  a  mile  on  Green  Lake. 
Washington  Park,  which  is  situated  in  the  east  central  part  of  the  city, 
extends  for  more  than  a  mile  along  the  shore  of  Lake  Washington.  City 
Park  is  just  outside  of  the  city  limits,  and  is  at  present  unimproved.  The 
municipal  authorities  have  also  acquired  through  gift  or  purchase  several 
smaller  pieces  of  property  in  various  parts  of  the  city. 

A  plan  for  the  improvement  and  extension  of  the  present  park  system, 
prepared  by  a  well-known  landscape  architect  of  ]\Iassachusetts,  is  now  being 
carried  out  under  the  direction  of  the  municipal  board  of  park  commissioners. 
The  plan  adopted  contemplates  the  preservation  of  some  remnants  of  the 
original  forest  which  fortunately  have  not  been  destroyed.  It  will  also  utilize 
the  unusual  advantages  which  Seattle  possesses  in  the  abundance,  variety 
and  magnificence  of  its  views  of  lake,  sound  and  snow-capped  mountains. 

The  campus  of  the  University  of  Washington  should  also  be  mentioned 
in  connection  with  the  Seattle  park  system.  It  contains  355  acres,  a  large 
portion  of  which  is  in  the  original  forest  state.  It  lies  between  Lake  Wash- 
ington and  Lake  Union,  having  a  water  frontage  of  more  than  a  mile  on  the 
former  and  about  a  quarter  of  a  mile  on  the  latter.  It  is  within  the  city 
limits,  and.  though  belonging  to  the  state,  is  \irtually  a  part  of  the  municipal 
park  system. 

During  the  last  two  or  three  3'ears  there  has  been  a  marked  growth  of 
sentiment  in  favor  of  providing  suitable  means  of  recreation  for  the  pupils 
of  the  public  schools.  Several  of  the  schools  now  have  teeters,  swings,  hori- 
zontal bars,  basket  ball  and  tennis  courts,  etc.  The  scheme  of  recreation  and 
amusement  also  includes  a  garden  on  or  near  the  school  grounds,  which  is 
cared  for  by  the  children. 

[772] 


Parks  and  Public  Playgrounds  i6i 

DULUTH 
By  W.  G.  JoERNS,  Esq.,  Duluth,  Minn. 

In  the  earlier  days  Duluth  was  provided  with  only  such  public  parks  as 
had  been  reserved  and  dedicated  to  public  use  in  the  several  plats  of  the 
city's  subdivisions.  These  were  mostly  in  the  nature  of  public  squares, 
except  a  few  larger  dedications  in  suburban  plats,  and  had  remained  almost 
wholly  unimproved.  It  was  in  the  latter  eighties  that  a  broader  scope  and 
systematic  development  of  Duluth's  park  system  was  agitated  and  inaugu- 
rated. The  prime  figure  in  this  movement  was  Mr.  \V.  K.  Rogers,  who  was 
better  known  to  the  general  public  as  the  one-time  private  secretary  of  Presi- 
dent Hayes.  Mr.  Rogers  had  come  to  Duluth  and  took  a  deep  interest  in  its 
development.  He  recognized  its  wonderful  natural  beauties  and  the  unusual 
possibilities  for  the  development  of  a  substantial  and  beautiful  park  system. 
He  was  the  leader  and  the  hardest  worker  in  the  movement  for  the  creation 
of  this  park  system,  and  to  his  enthusiasm  and  great  effort  was  largely  due 
the  fact  that  the  system,  as  it  exists  to-day,  was  finally  established.  Mr. 
Rogers  became  the  first  president  of  the  first  park  board  of  Duluth. 

Six  hundred  feet  above  the  level  of  Lake  Superior,  along  the  brow  of 
the  hills  surrounding  Duluth,  the  remains  of  an  ancient  beach  form  a  natural 
roadway  which  connects  numerous  small  water  courses  and  deep  gorges  and 
ravines,  and  all,  extending  over  a  distance  of  some  seven  miles  or  more,  have 
been  acquired  by  the  city  and  are  now  a  part  of  the  park  system  of  Duluth, 
and  form  one  of  the  most  beautiful  natural  drives  in  the  world.  The  city 
expended  in  the  purchase  and  improvement  of  this  particular  part  of  its  park 
system  approximately  three  hundred  thousand  dollars,  and  this  sum  forms 
a  part  of  its  present  bonded  indebtedness. 

The  control  of  the  parks  and  parkways  of  the  city  is  vested  in  a  Board 
of  Park  Commissioners  of  five  members,  who  are  appointed  b}-  the  Mayor, 
subject  to  confirmation  by  the  District  Court.  The  president  of  the  park 
board  is  ex-officio  a  member  of  the  City  Conference  Committee.  The  mem- 
bers serve  without  pay.  The  park  fund  is  provided  by  annual  tax  levy  and 
has  been  running  at  about  $10,000  a  year.  An  increase  of  approximately 
$5,000  was  made  for  the  coming  year  to  provide  means  for  the  acquirement 
of  additional  park  property. 

The  public  parks  of  Duluth  are  well  distributed  throughout  the  different 
sections  of  the  city,  are  well  taken  care  of  and  are  extensively  used  by  the 
public.  In  the  improvement  of  the  same  the  aim  has  been  observed  to 
retain,  as  much  as  possible,  the  natural  scenic  beauties.  Some  of  the  smaller 
squares  have  been  made  into  beautiful  flower  gardens.  The  park  board  has 
also  taken  charge  of  the  planting  of  trees  in  public  streets,  under  direction 
of  the  Common  Council,  and  in  the  course  of  the  past  ten  years  the  general 
beauty  of  the  city  has  been  thereby  much  improved.  Some  of  the  public 
squares  have  been  devoted  to  recreation  purposes  as  plaj'grounds,  and  in 
winter  as  skating  rinks ;  but  Duluth  has  as  yet  neither  public  baths  nor 
gymnasia. 

[773] 


II.     DEPARTMENT   OF   PHILANTHROPY,   CHARITIES   AND 

SOCIAL  PROBLEMS 

The  New  York  Society  for  the  Prevention  of  Cruelty  to  Children  was 

organized  in  1874,  and  at  once  found  itself  alone  in  a  field  of  immense  oppor- 
tunity. It  became  necessary  for  it  to  frame  laws  to  cover  existing  conditions 
and  with  a  view  to  the  future ;  to  get  the  good  will  and  approval  of  legislators 
and  of  public  authorities,  a  matter  not  always  easily  brought  about,  as  those 
connected  with  struggling  institutions  doing  a  public  work  well  know;  and 
to  assert  itself  in  a  manner  intended  to  bring  about  not  only  confidence  in  it, 
but  encouragement  in  the  organization  of  similar  institutions  elsewhere. 
These  things  it  did,  with  the  result  that  opinions  and  decisions  of  the  highest 
courts  to-day  lend  sanction  and  approval  to  its  efforts  on  behalf  of  suffering 
childhood.  The  trials  through  which  it  passed  in  its  early  years,  hard  to  bear 
as  they  were,  only  tended  to  fit  it  for  the  greater  work  yet  to  come,  and  of 
which  not  the  least  indication  was  then  to  be  had. 

There  are  to-day,  in  the  United  States  alone,  nearly  four  hundred  societies 
linked  together  for  the  prevention  of  cruelty  to  children,  every  one  of  them 
organized  since  the  work  was  begun  in  New  York  and  all  working  under 
laws  based  upon  those  of  this  state.  Every  important  city  in  Europe  has  its 
society  and  India  and  Australia  are  not  without  representation. 

It  was  the  privilege  of  the  New  York  Society  to  be  sponsor  to  the  first 
laws  of  the  empire  state  regulating  the  hours  of  child  labor;  and,  that  "child 
labor"  represents  but  2  per  cent,  of  the  working  population  of  the  Metropolis 
is  perhaps  due  more  to  that  early  foresight  than  to  any  other  one  thing.  It 
also  drafted  the  legislative  enactments  separating  children  under  sixteen  years 
of  age  from  adults  charged  with  crime. 

The  parole  or  probation  system  now  so  generally  in  vogue  had  its  birth 
in  the  old  method  of  suspending  sentence  upon  a  child  convicted  of  crime 
and  placing  him  in  the  legal  custody  of  a  clergyman,  a  school  teacher  or  other 
responsible  citizen,  during  good  behavior.  In  a  single  year  hundreds  of  chil- 
dren were  so  released,  and  many  of  them  upon  my  personal  application.  The 
number  returned  to  court  for  violating  the  provisions  of  the  terms  of  their 
release  was  proportionate  with  the  number  of  returns  for  what  is  now  called 
"violation  of  parole."  The  present  method,  however,  is  systematized  to  an 
extent  that  makes  it  one  of  the  most  important  branches  of  the  society's  work. 
The  writer  is  the  chief  probation  officer  for  the  boroughs  of  Manhattan  and 
The  Bronx  and,  as  such,  has  personal  direction  of  the  probation  work  author- 
ized by  the  justices  of  the  criminal  courts  within  that  jurisdiction.  The  aver- 
age number  of  boys  and  girls  on  probation  is  two  hundred.  These  are  regu- 
larly visited  by  trained  special  officers,  deputized  to  act  as  probation  officers, 
who  acquaint  themselves  with  the  child,  its  characteristics,  surroundings  and 

[774] 


Philanthropy,  Charities  and  Social  Problems  163 

general  conditions.  The  findings  in  all  cases  are  presented  in  detail  to  the 
courts,  with  such  recommendations  or  suggestions  as  each  requires. 

The  recent,  though  quite  natural,  spread  of  probation  all  over  the  country 
and  to  foreign  lands  has  given  rise  to  the  impression  that  it  is  an  entirely  new 
departure,  whereas  magistrates  and  justices  of  the  criminal  courts  of  New 
York  have  been  releasing  girls  and  boys,  convicted  of  crime,  on  probation, 
always  explaining  that  it  was  during  their  good  behavior,  for  a  period  of  over 
twenty  years. 

The  New  York  Children's  Court,  technically  known  as  "The  Court  of 
Special  Sessions  of  the  First  Division,  Children's  Part,"  was  opened  Sep- 
tember 2,  1902,  by  the  authority  of  Chapter  590  of  the  Laws  of  1902,  and  is 
authorized  to  try,  and  dispose  of,  all  cases  involving  charges  against  children 
under  sixteen  years  of  age,  except  those  in  which  the  charge  is  a  capital 
offense,  or  where  the  child  is  taken  into  custody  jointly  charged  with  crime 
with  a  person  over  that  age.  That  law  was  drafted  by  one  of  the  most 
eminent  authorities  on  the  bench,  the  Hon.  Joseph  M.  Deuel,  who  for  many 
years  had  studied  and  written  upon  the  subject  of  juvenile  crime,  its  causes 
and  effects. 

Our  Juvenile  Court  has  from  the  beginning  been  presided  over  by  a  suc- 
cession of  able  men,  who  have  lent  dignity  and  distinction  to  its  deliberations. 
It  is  the  first  Children's  Court  in  the  country  whose  hearings  are  held  in  a 
detached  building,  separate  and  apart  from  any  other  criminal  court,  and 
where  cases  of  children  under  sixteen  years  of  age  exclusively  are  heard. 
There  are  many  reasons  why  it  would  be  impracticable  to  install  such  a  court 
in  a  separate  building  in  small  communities,  the  chief  one  being  that  most  of 
the  children's  courts  outside  of  New  York  City  hold  but  one  session  a  week, 
and  that  in  a  court-room  used  for  the  hearing  of  all  cases,  adult  and  minor, 
even  on  the  day  set  for  the  "children's  court,"  the  latter  being  held  after  the 
others  are  disposed  of.  There  have  been  such  "children's  courts"  in  New 
York  since  1892,  when  the  legislature  of  this  state  passed  laws  separating 
children  from  adults  charged  with  crime,  and  provided  for  their  examination 
in  criminal  courts  of  inferior  jurisdiction  only  after  all  persons  not  directly 
involved  in  the  case  being  heard  were  ordered  out  of  the  room.  There  were 
seven  such  courts,  one  in  every  court  district,  and  every  one  had  its  daily 
quota  of  children's  cases.  Most  of  the  juvenile  courts  throughout  the  coun- 
try to-day  are  following  that  erstwhile  admirable  plan.  The  necessary  atmos- 
phere of  an  exclusive  children's  court  is  thus  preserved  in  exactly  the  same 
manner  as  intended  by  its  incorporation. 

The  New  York  Society  for  the  Prevention  of  Cruelty  to  Children  is  repre- 
sented by  officers  at  every  session  of  the  court  for  the  boroughs  of  Manhattan 
and  The  Bron.x.  Its  records  are  at  once  accessible  to  the  presiding  justice  and, 
in  numerous  instances,  suggest  dispositions  which,  without  them,  would  of 
necessity  have  to  be  deferred  several  days,  pending  lengthy  investigations. 

Every  child  arrested  in  old  New  York  for  any  offense  whatever  is  at 
once,  as  required  by  law,  taken  to  the  rooms  of  the  society,  if  after  court 
hours,  and  there  detained  until  the  next  session  of  the  Children's  Court,  for 
a  hearing.     To  prevent  overcrowding  of  the  society's  dormitories,  where  a 

[775] 


164  The  Ai Dials  of  the  American  Academy 

thousand  children  arc  sheltered  every  month,  and  to  provide  for  the  release 
of  children  arrested  for  minor  offenses,  such  as  violating  corporation  ordi- 
nances, or  the  newsboy  or  child  labor  law  or  for  disorderly  conduct,  a  law 
was  passed  two  years  ago  by  which  a  parent  or  guardian  may  sign  a  "personal 
recognizance,"  without  giving  bail  security,  for  the  child's  production  at  the 
next  session  of  the  court.  This  also  prevents  the  unnecessary  and  humiliating 
separation  of  petty  offenders  from  their  homes  while  judgment  is  pending. 
Our  court  is  fortunate  in  having  in  daily  attendance  volunteer  workers  of  the 
three  great  religions,  who  render  a  moral  suport  of  too  high  a  degree  to 
permit  of  estimate.  Their  work  is  one  of  personal  service,  and  it  produces 
results  far  more  satisfactory,  both  to  the  court  and  to  the  child,  than  any 
mere  official  decision  ever  could.  These  workers  form  the  long-lost  link 
between  impartial  justice,  however  merciful  it  may  be,  and  the  offending 
child.  Their  work  is  often  done  in  assisting  the  chief  probation  ofificer,  whose 
volunteer  deputies  they  become  on  request. 

Societies  for  the  prevention  of  cruelty  to  children,  as  such,  should  not  be 
mere  alms-giving  organizations.  Such  charity  as  they  dispense  should  be 
given  in  connection  with  their  work  as  agents  of  the  law,  in  the  enforcement 
of  the  criminal  laws  under  which  they  operate.  The  opinion  was  long  held 
by  certain  charitable  societies  that  societies  for  the  prevention  of  cruelty  to 
children  were  charitable  institutions,  although  authorized  to  appoint  special 
officers  with  police  powers,  and  to  enforce  special  laws.  The  New  York 
Society  has  had  that  much  mooted  question  settled,  on  appeal,  by  the  highest 
court  in  the  state.  The  Court  of  Appeals  has  decided  (The  People  of  the  State 
of  New  York  ex  rel.  the  Stale  Board  of  Charities,  Respondent,  vs.  The  New 
York  Society  for  the  Prevention  of  Cruelty  to  Children,  i6i  N.  Y.  R.  233 ; 
162  N.  Y.  R.  429)  that  societies  for  the  prevention  of  cruelty  to  children  are 
sub-goventjuenta!  agencies,  and  in  reality  branches  of  the  courts,  the  district 
attorney's  office  and  the  police  department;  that  they  are  "quasi  public  cor- 
porations, authorized  for  the  greater  convenience  and  certainty  of  accom- 
plishing governmental  work."  Their  value  as  aids  to  the  local  government 
is  at  once  apparent,  in  that  they  are  branches  of  those  various  departments, 
and  responsible  to  each  for  the  work  they  perform.  Such  societies  in  New 
York  State  are  now  incorporated  under  Article  V  of  the  Membership  Cor- 
poration Law  (Laws  of  1895,  Chapter  559,  Sections  70,  71  and  72),  which 
amended  Chapter  130,  Laws  of  1875,  under  which  the  first  society  was  incor- 
porated. 

Should  a  society  whose  investigation  of  cases  involving  the  social  and 
moral  welfare  of  half  a  million  of  children  do  anything  more  than  state  the 
facts  to  justify  its  existence? 

Some  two  hundred  thousand  case  records  are  on  file  in  the  vaults  of  the 
parent  society,  and  its  books  show  seventy  thousand  convictions  for  offenses 
against  children.  The  society  collects  the  evidence  and  prepares  the  '"Brief 
for  the  People"  in  every  criminal  prosecution  instituted  by  it,  and  has  yet  to 
be  questioned  by  the  chief  prosecuting  attorney  of  the  count3s  whose  deputies 
prosecute  offenders  against  children  on  the  society's  Brief,  relying  entirely 
upon  its  investigations  by  expert  officers.     The  nimibcr  of  convictions  is  the 

[776] 


Philanthropy,  Charities  and  Social  Problems  165 

justification  of  such  a  course.  And  in  addition  to  prosecuting  hundreds  of 
criminals,  its  rooms  shelter  and  it  feeds  and  clothes  ten  thousand  children  a 
year.  One  hundred  thousand  children  have  been  rescued  and  placed  in 
homes  away  from  improper  influences.  INIen  and  women  of  standing  not  in- 
frequently acknowledge  that  their  respectability  is  due  entirely  to  their  early 
removal  by  the  society  from  degrading  environment. 

The  sub-joined  table  shows  something  of  the  growth  of  the  work: 


1 

'   c4 

ca  cij  j3 

'       0 

g  ° 

w  c  5 

•d   1 

'■+J 
10 

•d 
c 

to 

.2 

rimin 
natur 
nd    a 

c 
0 

-4-> 

1   c 
0  ■ 

> 
0 
> 

> 
■3 

a 

m 

1      <u 

3 
0 

'n 
0) 

6 
0 

3 
0 

D 

yj 
0 

a, 

cases   of   c 
assault,  un 
offenses    a 

.0 
0 
.5 

Prosecu 
all  offenses 

Convicti 
all  offenses 

Penaltie 
posed,    tei 
iniprisonm 

c 

2 
0 

c 
< 

1875 
1880 

300 

;  1.577 

72 
S55 

197 
604 

569 

1885 

1890 

1895 

I  4,638 

7.477 
,  8,523, 

2.979 
3-336 
5,350 

1,790 
2.590 
3,301 

1,729 

2,553 
3,249 

' 

109 

147  yrs. 

13,108 

5,69s 

1900 

:  9.146 

6,092 

163 

2,060  1 

1,875 

163  yrs. 

26,460 

25,823 

1905* 

15,000 

10,000 

200 

9,000 

7.500 

416  yrs. 

45,000 

35.000 

*  Estimated. 

The  organization  of  the  first  society  was  due  to  the  accidental  discovery, 
in  1S74,  of  a  case  of  atrocious  cruelty  to  a  j^oung  orphan  girl.  Her  rescue 
brought  about  a  revolution  in  the  "humane"  laws  of  the  world.  A  generation 
of  this  work,  with  its  marvelous  growth  to  every  corner  of  the  globe,  and  the 
result  of  its  efforts  for  children,  make  one  wonder,  not  so  much  at  the  late 
date  of  its  beginning,  as  at  what  the  future  may  have  in  store  for  it,  for  any 
w-ork  but  a  generation  old  cannot  be  said  to  be  more  than  well  begun.^ 

The  National  Conference  of  Charities  and  Corrections,  which  was  held 
at  Portland,  Ore.,  in  July,  was  made  notable  by  the  discussion  of  three  topics 
which  had  hitherto  received  comparativel}'  little  attention  from  the  Conference, 
namel}-,  the  warfare  against  tuberculosis,  immigration  and  the  broad  treat- 
ment of  medical  charities,  from  the  administrative  standpoint.  Dr.  E.  T. 
Devine,  who  was  chairman  of  the  Committee  on  Tuberculosis,  asserted  that 
from  the  national  standpoint,  comparatively  little  is  being  done  for  advanced 
cases,  and  that  practically  nothing  has  been  done  for  tuberculosis  children, 
except  to  show  by  modest  experiment,  the  marvelous  results  which  can  be 
obtained  if  suitable  sanitoria  are  established.  He  called  attention  to  the  fail- 
ure to  segregate  and  specially  treat  consumptives  in  hospitals  for  the  insane, 
in  prisons,  almshouses,  reformatories  and  other  institutions.  Emphasis  was 
laid  upon  the  importance  of  providing  special  liberal  diet  in  caring  for  con- 
sumptives in  their  own  homes,  as  a  substitute  for  the  sanitarium.  Dr.  Woods 
Hutchinson,  of  Portland,  who  advocated  the  open-air  sanitarium,  declared  that 

'  Contributed  by    E.  Fellows  Jenkins,   Secretary  and  Superintendent,   New  ^York  Society 
for  Prevention  of  Cruelty  to  Children. 

[777] 


1 66  The  Annals  of  the  American  Academy 

the  tent  is  the  ideal  shelter,  because  it  gives  the  maximum  of  fresh  air  with  a 
minimum  of  expense. 

Medical  charities  were  discussed  under  the  direction  of  the  committee 
on  the  care  of  the  sick,  of  which  Nathan  Bijur,  of  New  York,  was  chairman. 
His  paper  on  the  "Ambulance  System  of  the  United  States,"  is  very  compre- 
hensive. In  this  section  of  the  Conference,  a  notable  paper  was  read  by  Dr. 
Walter  Lindley,  of  Los  Angeles,  on  the  care  of  the  sick  in  hospitals  and  in 
their  homes,  in  which  a  plea  was  made  for  the  establishment  of  hospitals  for 
the  independent,  self-respecting  working  people,  who  can  afford  to  pay  a 
dollar  a  day  for  their  care,  and  who  do  not  want  to  be  objects  of  charity. 

Considerable  friction  developed  between  the  East  and  the  West,  in  the 
discussion  of  the  immigration  question.  The  Eastern  men  took  the  broad 
ground  that  there  should  be  no  check  to  the  admission  of  healthy  non-crim- 
inal persons  from  any  civilized  country,  but  that  steps  must  be  taken  to  pro- 
vide for  their  distribution  over  a  wider  area,  and  that  the  difficulties  of  keep- 
ing out  the  unhealthy,  the  pauper  and  the  criminal  classes,  are  not  inherent, 
but  can  be  regulated  by  proper  administration.  To  the  surprise  of  the  Con- 
ference, the  secretary  of  the  Californian  State  Board  of  Charities,  insisted 
that  there  was  an  abundance  of  laborers  in  the  West,  particularly  on  the 
Pacific  coast,  and  that  the  only  class  which  the  Pacific  States  are  disposed 
to  welcome,  is  the  class  of  settlers  with  means,  who  can  themselves  employ 
labor  and  develop  the  land.  The  author  of  this  account  of  the  Conference, 
speaking  from  the  standpoint  of  actual  knowledge  and  experience  of  farming 
conditions  in  California,  Oregon  and  Washington,  challenged  this  statement, 
and  offered  testimony  in  contradiction. 

Perhaps  the  most  popular  section  was  that  on  juvenile  courts,  which  was 
in  charge  of  Judge  Ben.  B.  Lindsey,  of  Denver.  The  movement  is  still 
sufficiently  new  to  be  interesting,  and  much  enthusiasm  was  aroused  locally 
by  the  presentation  of  the  subject  by  such  men  as  Judge  Lindsey,  Judge  J.  W. 
Mack,  of  Chicago,  and  Judge  Willis  Brown,  of  Salt  Lake.  So  far  the  Confer- 
ence has  limited  its  discussion  of  this  topic  and  that  of  probation,  to  the 
methods  which  have  been  adopted  in  cities.  The  men  who  have  done  such 
good  work  in  this  connection,  do  not  seem  to  have  faced  the  problem  of  how 
to  handle  delinquent  children  in  the  rural  districts.  At  any  rate,  no  attempt 
was  made  to  deal  with  this  most  important  phase  of  the  subject. 

The  1906  Conference  will  be  held  in  Philadelphia  in  May,  under  the  presi- 
dency of  Dr.  E.  T.  Devine,  and  it  is  expected  that  the  attendance  will  be  large 
and  thoroughly  representative,  and  that  it  will  mark  a  distinct  step  in  advance 
in  the  scientific  discussion  of  all  forms  of  social  welfare  work.' 

Crippled  Children's  Driving  Fund. —This  year  has  seen  in  New  York  the 
establishment  of  a  Crippled  Children's  Driving  Fund,  which  has  for  its  object 
the  giving  to  crippled  and  convalescent  children,  from  hospitals  and  tenement 
homes,  weekly  rides  to  Central  Park.  Large  four-seated  carriages  are  used 
and  the  parties  begun  April  ist  will  continue  in  increasing  numbers  to  Novem- 
ber 1st.  For  the  purpose  of  organizing  these  parties,  the  children  are  visited 
in  their  homes  and  a  brief  record  is  made  of  each  child's  disease ;  its  cause, 

'Contributed  by  Mr.  Hugh  F.  Fox. 

[778] 


Philanthropy,  Charities  and  Social  Problems  167 

duration  and  treatment;  names  of  parents  and  their  nationality;  number  of 
rooms,  their  condition  and  the  number  of  adults  and  children  occupying  them. 
An  effort  also  is  made  to  ascertain  where  and  with  how  many  persons  the 
crippled  member  of  the  family  sleeps.  In  some  instances,  mothers  state  with 
great  pride  that  the  child  sleeps  alone,  and  in  the  "front  room" — which  means 
that  the  gospel  of  fresh  air  preached  by  the  Board  of  Health,  dispensary 
physician,  visiting  nurse,  relief  visitor  and  the  daily  paper  is  beginning  to  be 
appreciated.  It  is  a  lamentable  fact  that  so  few  hospitals  have  yet  applied 
the  fresh  air  treatment  which  many  of  their  physicians  recommend. 

Proper  housing  conditions  and  cleanliness  in  the  homes  will  reduce  to  a 
minimum  the  crippling  disease.  It  is  one  of  the  offices  of  the  Crippled  Chil- 
dren's Driving  Fund  in  its  friendly  relation  with  families  where  there  may  be 
one,  two  or  three  crippled  children  to  trace  with  the  mother  the  origin  of  her 
child's  disease ;  show  her  how  she  can  help  to  arrest  it,  and  prevent  similar 
suffering  for  other  members  of  her  family.  With  the  co-operation  of  hos- 
pitals, dispensaries,  schools,  settlements,  churches  and  relief  societies  a  com- 
plete census  of  crippled  children  in  New  York  will  be  made  by  the  Crippled 
Children's  Driving  Fund  which  will  then  be  prepared  to  add  to  its  office 
of  prevention,  one  of  arresting  and  curing.  Records  will  contain  sufficient  data 
to  show  the  amount  of  provision  necessary  for  proper  treatment  of  the  dis- 
ease of  a  vast  majority  of  the  crippled  children  (tuberculosis  of  the  bones) 
the  most  effective  treatment  being  that  of  salt  air,  as  proved  at  the  seaside 
sanitoria  of  Italy,  France  and  Germany  and  at  the  one  established  at  Coney 
Island,  in  1904,  by  the  New  York  Association  for  Improving  the  Condition 
of  the  Poor. 

The  directors  of  the  Driving  Fund  are  confident  that  if  the  crippled  chil- 
dren are  taught  thoroughly  by  their  weekly  pleasure  drives  the  medicinal 
effect  of  the  air,  they  will  create  a  demand  for  fresh  air  in  their  hospitals  and 
homes  that  cannot  be  ignored.' 

London's  Unemployed. — ^The  agitation  in  regard  to  London's  unemployed 
is  going  vigorously  on.  The  Prime  Minister  is  receiving  frequent  letters 
asking  for  information  in  regard  to  the  Royal  Commission  which  it  is  pro- 
posed to  appoint  to  inquire  into  the  subject,  and  when  it  is  to  be  appointed. 
English  people  are  greatly  incensed  at  the  Royal  Commissioners  not  having 
been  appointed  as  yet,  and  Mr.  Balfour  promises  that  it  will  be  shortly  done. 
Major  Coates,  M.  P.,  says  that  the  question  is  growing  and  is  of  constantly 
increasing  importance  and  one  that  is  difficult  and  perplexing.  The  poor 
classes  of  Englishmen  do  not  want  charity,  they  want  employment  for  their 
labor,  which  is  their  only  asset.  This  asset  is  a  national  one,  and  leading  men 
of  all  classes,  creeds  and  political  opinions  appear  to  be  uniting  in  endeavor- 
ing to  solve  this  question.  "What  we  really  want  is  an  improvement  in  trade 
and  then  employment  would  be  more  diffused." 

The  English  Housing  Problem. —That  the  English  people  are  thoroughly 
aroused  to  the  housing  problem  is  demonstrated  by  the  number  of  articles 
that  are  found  in  the  journals  of  London.  A  most  interesting  meeting  on  this 
subject  has  been  held  at  Letchworth,  where  the  rural  housing  problem  was 

•Contributed  by  Edna  Gilbert  Meeker,  Superintendent. 

[779] 


i6S  Hie  Aimah  of  tlie  American  Acadnuy 

discussed  by  two  hundred  delegates  from  fifty  rural  district  councils  who  had 
travelled  to  the  city  from  all  parts  of  England.  Twenty-eight  counties  were 
represented.  The  object  of  the  meeting  was  clearly  stated  by  the  chairman, 
Mr.  Alderman  W.  Thompson,  of  Richmond,  Surrey,  who  stated  that  the 
founders  of  the  exhibition  of  cheap  cottages  demonstrated  that  it  was  possible 
in  the  rural  districts  to  erect  cottages  at  a  much  less  cost  than  those  which 
had  been  put  up  as  model  cottages  by  large  landowners.  The  cost  of  cottages 
built  by  the  large  landowners  was  $i,ooo  to  $1,500  apiece,  but  the  very  cheap- 
est, those  that  were  erected  in  Norfolk,  cost  $1,600  a  pair.  It  was  clearly 
brought  out  that  the  cost  of  a  number  of  cottages  which  had  been  built  was 
$750  and  they  clearly  demonstrated  the  possibility  of  erecting  cottages  with 
three  good  bedrooms  and  two  living  rooms  and  all  the  necessary  and  in  some 
cases  luxurious  fittings  for  under  $1,000.  In  stating  this  sum  the  chairman 
said  that  it  did  not  include  any  profit  for  the  builders  nor  the  architects'  fee-; 
nor  a  bath,  nor  the  fencing.  To  cover  this  an  extra  25  per  cent,  would  have 
to  be  added  to  the  price. 

Mr.  R.  Winfrey,  of  Lincolnshire,  stated  that  in  that  county  they  had 
made  very  material  progress  in  the  direction  of  getthng  men  "back  to  the  land." 
They  had  put  two  hundred  tenants  on  one  thousand  acres  of  land,  but  the 
great  difficulty  was  to  find  suitable  houses.  Many  men  were  bringing  up 
large  families  with  only  two  bedrooms,  under  conditions  which  did  not  allow 
of  common  decency.  He  also  stated  that  he  knew  of  a  number  of  young 
men  who  were  desirious  of  marrying,  but  were  debarred  on  account  of  not 
being  able  to  get  houses.  It  was  clearly  brought  out  by  Miss  Constance 
Cochrane,  of  the  Housing  and  Sanitation  Association,  that  it  was  important 
to  ascertain  from  the  agricultural  laborers  themselves  what  would  be  accept- 
able to  them,  what  they  wanted  for  a  cottage.  She  said  she  had  personally 
canvassed  the  views  of  fifty  families  in  seven  villages.  Out  of  the  fifty  inter- 
viewed, fortj'-seven  families  asked  that  the  cottages  might  have  three  bed- 
rooms. They  clamored  for  these  above  everything  else.  Very  few  expressed 
a  desire  for  a  bath,  saying  they  were  perfectly  satisfied  with  the  tub.  Everyone 
wanted  chimneys  that  did  not  smoke. 

Mr.  W.  F.  Craies,  secretary  to  the  ^Mansion  House  Council  on  Dwellings 
of  the  Poor,  said  that  in  his  opinion  many  of  the  cottages  that  had  been  built 
were  more  suited  to  a  week  end  tenant  than  to  an  agricultural  laborer.  He 
agreed  with  the  last  speaker  that  it  would  be  wise  to  have  a  gathering  of 
agricultural  laborers  in  each  county  and  to  hear  their  personal  views  on  the 
cottages  that  they  desire.  He  said  that  there  was  great  danger  in  districts 
near  large  towns  of  laborers  being  sacrificed  to  the  week  end  tenant. 

A  delegate  from  Chipperfield.  Hertfordshire  district  council,  declared 
that  in  his  village  there  was  not  one  cottage  with  three  bedrooms. 

The  chairman  said  that  in  presenting  a  resolution  emphasizing  the  de- 
sirability of  rural  district  councils,  vigorously  using  the  power  they  already 
possessed  under  the  housing  act,  we  were  not  to  lose  sight  of  the  fact  that 
councils  would  never  get  proper  laws  in  force  until  they  did  their  duty  as 
builders  of  houses  themselves. 

[780] 


Philanthropy,  Chanties  and  Social  Problems  169 

The  International  Prison  Conference  at  Buda-Pesth,  Hungary,  opened 
on  the  3d  of  September,  and  twenty-three  countries  were  represented  by  com- 
missioners and  delegates :  America,  Austria,  Bade,  Bavaria,  Belgium,  Bul- 
garia, Cuba,  France,  Great  Britain  and  Ireland,  Greece,  Hungary,  Japan, 
Italy,  INIexico,  Norway,  Pays-Bas,  Roumania,  Russia,  Finland,  Saxe,  Serbia, 
Suede,  Switzerland.  There  were  ten  delegates  from  the  United  States  present. 
The  lirst  meeting  was  held  in  the  Salle  d'honneur  du  Palais  de  I'Academie 
des  Sciences. 

His  Imperial  Highness,  the  Royal  Archduke  Joseph,  received  the  cre- 
dentials of  the  delegates,  and  welcomed  the  Conference  in  the  name  of  the 
King  of  Hungary  (Emperor  of  Austria).  His  Excellency,  M.  B.  Lanyi,  Min- 
ister of  Justice  of  Hungary,  presided  over  the  Conference.  A  reception  was 
given  in  the  Castle  of  Archduke  Joseph  on  the  evening  of  September  3d,  and 
the  delegates  were  treated  in  the  most  cordial  manner  by  Prince  Joseph  and 
the  Hungarian  Ministers. 

On  the  morning  of  September  4th  the  secretary  read  the  names  of  the 
vice-presidents  and  under  secretaries.  Dr.  Louis  Gruber,  of  Buda-Pesth,  was 
made  secretary.  The  various  reports  that  had  been  made  to  the  congress 
were  summarized  by  M.  Bela  de  Balas  as  follows : 

I.  The  moral  classification  of  prisoners  is  necessary. 

II.  The  first  class  should  contain  the  worst  offenders,  those  recognized  as 
such  from  the  time  of  their  arrival  at  the  penitentiary  or  during  their  deten- 
tion. 

III.  A  special  class  should  be  organized  for  youthful  offenders  not  abso- 
lutely bad.  It  should  be  incumbent  upon  all  the  authorities  who  come  into 
contact  with  the  prisoners  to  give  a  faithful  account  of  them.  The  character 
of  the  condemned  person  should  always  be  a  matter  of  special  study  during 
the  time  of  their  incarceration. 

IV.  The  remainder  of  the  prisoners  should  be  divided  into  three  divisions 
as  follows : 

(a)  Those  whose  conduct  is  exemplary. 

(&)  Those  whose  conduct  is  good. 

(c)   Those  whose  conduct  is  doubtful. 

Although  the  treatment  of  prisoners  should  always  tend  to  their  improve- 
ment, the  means  used  must  differ  in  accordance  with  the  requirements  of  each 
class.  The  regime  should  be  more  severe  for  the  worst  cases,  while  the  pa- 
tronage, extended  to  the  others,  more  especially  to  the  young  offenders,  should 
be  of  such  a  nature  as  to  stand  them  in  good  stead  at  the  time  of  their  release. 

After  a  long  and  animated  discussion,  the  conclusions  as  presented  were 
adopted,  and  made  part  of  the  proceedings. 

A  meeting  of  the  third  section,  of  which  Mr.  Samuel  Barrows  was  presi- 
dent, discussed  the  following  questions,  which  had  been  presented  by  Dr. 
Kuthy,  co-reporter : 

I.  The  principles  of  construction  and  installation  of  a  modern  establish- 
ment should  be  exactly  formulated  by  a  conuuission  of  experts  appointed 
thereto  by  the  International  Congress. 

[781] 


lyo  The  Annals  uf  the  American  Academy 

II.  A  committee  elected  by  the  members  of  the  congress  should  be  en- 
trusted with  the  careful  regulation  of  all  the  hygienic  measures  taken  by  the 
penitentiary  establishments. 

III.  A  modern  penitentiary  establishment  should  be  provided  with  a 
special  division  for  temporary  isolation,  and  with  good  accommodation  for  the 
sick. 

This  resolution  was  adopted  unanimously,  and  Mr.  Roger  Troussel,  as 
reporter  of  the  section,  was  asked  to  lay  it  before  the  congress. 

The  following  resolutions  were  introduced  by  M.  E.  de  Barlogh,  discussed 
at  a  general  meeting,  and  adopted : 

I.  (a)  The  congress  is  of  opinion  that  the  destitute  and  deserted  children 
of  prisoners,  should  in  the  first  place  be  the  charge  of  the  benevolent  socie- 
ties, and  only  in  the  second  place  of  the  community,  the  district,  the  depart- 
ment or  any  other  administrative  authority. 

(b)  Nevertheless  it  is  the  duty  of  the  state  to  look  after  all  the  indigent 
and  morally  neglected  children  of  prisoners,  whenever  the  authorities  know 
that  the  benevolent  societies  have  not  taken  charge  of  them,  or  do  not  take 
proper  measures  to  counteract  their  moral  degradation ;  or  if  the  community, 
the  district,  the  department  or  any  other  administrative  society  do  not  prop- 
erly discharge  their  duty;  in  short,  if  it  appears  from  the  reports  made  to 
the  state  authorities,  that  such  children  cannot  be  adequately  provided  for  by 
private  institutions  or  societies. 

A  proposition  offered  by  Mr.  Dreyfuss  and  seconded  by  the  co-reporter 
was  adopted  to  the  effect  that : 

When  there  are  no  blood  relations  it  is  the  duty  of  the  state  to  protect 
and  to  educate  the  destitute  children  of  prisoners,  with  the  concurrence  of  the 
local  administrations  and  the  assistance  of  private  persons  and  charitable 
societies. 

Several  public  lectures  were  given  between  the  sessions  of  the  sections 
upon  the  following  subjects :  Juvenile  Criminals,  The  Present  State  of  Prison 
Discipline,  The  Mathematical  and  Statistical  Bases  of  Criminality,  and  The 
Struggle  Against  the  Criminality  of  Juvenile  Delinquents  in  the  United 
States  of  America,  by  Hon.  Samuel  Barrows,  commissioner  for  the  United 
States.  The  lecture  delivered  by  M.  de  Wlassic  gave  an  acount  of  the  progress 
which  had  been  made  in  Hungary  in  the  management  of  its  penal  institutions. 

M.  A.  Urbye,  procuror  general,  etc.,  at  the  University  of  Christiania, 
gave  a  lecture  upon  the  Norwegian  penal  systems. 

Question  I  considered  by  Section  II  of  the  Conference  was:  "What  are 
the  best  means  for  effecting  a  moral  classification  of  prisoners  and  what  may 
be  the  consequences  of  such  classification?"  The  following  report  on  this 
question  was  made  by  Dr.  Curti,  director  of  the  penitentiary  at  Regensdorf, 
Zurich : 

"The  best  way  to  arrive  at  an  exact  and  moral  classification  of  prisoners, 
would  be  by  a  system  of  rational  and  progressive  education.  Such  a  system 
should  reckon  with  human  nature  with  all  its  weakness.  It  should  take  ac- 
count of  the  individuality  of  the  accused,  and  work  without  prejudice  on  the 
broad  principles  of  justice  and  impartiality. 

[782] 


Philanthropy,  Charities  and  Social  Problems  171 

"The  fundamental  principle  of  moral  elevation  and  judicious  classifica- 
tion is  intimately  connected  with  the  principle  of  separate  confinement.  Every 
condemned  person  should,  at  the  commencement  of  his  term  of  penance,  be 
kept  isolated,  day  and  night,  and  should  be  allowed  no  intercourse  whatever 
with  his  fellow  prisoners.  He  should  be  left  to  his  own  reflections  and  the 
remorse  of  his  conscience;  the  silence  of  the  cell,  for  this  isolation  will  induce 
him  to  consider  the  consequences  of  his  offence.  This  process  of  reflection 
should  not  be  interrupted  by  any  occupation  of  a  distracting  nature.  Only 
the  functionaries  of  the  establishment,  and  more  particularly  the  director 
and  the  chaplain  are  called  upon,  in  this  first  stage,  to  exercise  a  mediatory 
and  corrective  influence  upon  the  prisoner.  They  should  endeavor  to  calm 
the  storm  that  rages  within  him,  evoke  in  him  an  exact  understanding  of  the 
position  in  which  he  is  placed  in  consequence  of  his  crime,  and  provoke  in 
him  good  and  holy  resolutions.  Good  and  salutary  literature  will  have  a 
beneficial  influence  upon  him.  Correspondence  between  him  and  his  rela- 
tions might  also  be  permitted  on  condition  that  this  be  carefully  controlled. 

"For  young  criminals  school  attendance  would  be  profitable.  For  all, 
young  and  old,  the  attendance  at  public  worship  should  be  made  obligatory, 
and  the  services  should  include  music.  There  might  well  be  special  practice  in 
singing.  On  Sunday  afternoons  the  prisoners  might  be  suitably  entertained 
and  instructed  by  conversations  and  lectures  on  history  and  geography. 

"The  duration  of  this  first  stage  of  the  term  of  punishment  should  be 
sufficiently  long  for  a  real,  sincere  and  lasting  change  for  the  better  to  take 
place  in  the  condemned  person.  When  the  staff  in  charge  of  the  establishment 
has  become  convinced  that  such  is  the  case,  the  prisoner  should  be  moved  into 
a  higher  class,  or  rather  into  a  second  stage.  He  might  then  be  allowed 
a  few  more  privileges.  The  solitary  confinement  might  be  limited  to  the 
night  only ;  in  the  day  time  the  prisoner  might  be  permitted  to  work  in  com- 
pany with  his  fellows ;  the  work  assigned  to  him  should  also  serve  to  develop 
his  intellect.  It  should  always  be  of  such  a  nature  as  to  render  him  capable, 
through  the  knowledge  and  skill  thus  obtained,  of  earning  an  honest  living 
when  he  leaves  the  house  of  detention.  Correspondence  with  relatives  and 
also  the  visits  he  is  entitled  to  receive,  might  also  then  be  more  frequent.  His 
pay  should  also  be  increased,  and  he  should  be  encouraged  to  use  it  to  pro- 
cure useful  books,  drawing  materials,  or  to  devote  it  wholly  or  partially  to 
relieve  the  need  of  those  belonging  to  him.  From  this  second  class  might 
be  recruited  those  appointed  to  undertake  the  housework  of  the  establish- 
ment, and  in  whom  therefore  a  certain  amount  of  confidence  must  be  placed. 
To  the  prisoners  in  this  class  might  also  be  entrusted  the  work  of  the  farm 
and  dairy,  and  of  the  field  and  the  kitchen-garden.  They  might  also  be 
allowed  to  adorn  their  cells  with  photographs  of  relations,  flowers,  or  to  keep 
a  singing  bird. 

"The  favors  extended  to  the  prisoners  of  the  second  class  are  increased 
for  those  in  the  third  class.  They  are  entitled  to  see  their  friends  once  a 
month  and  to  receive  letters  once  in  four  weeks.  Their  pay  is  also  increased, 
but  can  never  be  used  in  any  of  these  classes,  to  procure  for  themselves  extra 
food  and  drink.     Tobacco  and  snuflf  are  always  strictly  prohibited. 

[783I 


172  The  Auiials  of  the  American  Academy 

"The  fourth  class,  the  highest,  constitutes  a  kind  of  conditional  liberty. 
This  can  only  be  granted  to  the  non-habituals  or  to  those  who  by  rising  from 
one  class  into  another,  have  never  given  cause  for  complaint;  who  have  proved 
that  their  conversion  is  serious  and  that  they  may  safely  be  allowed  a  con- 
ditional liberty,  previous  to  being  restored  to  society." 

Dr.  Curti  summarizes  his  report  as  follows: 

"i.  The  best  means  for  -organizing  an  exact  and  moral  classification  of 
prisoners,  is  a  system  of  rational  and  progressive  education. 

"2.  The  practical  outcome  of  such  classification  would  be:  (a)  for  the 
first  stage,  solitary  confinement  day  and  night;  (b)  for  the  second  stage, 
work  in  common,  and  solitary  confinement  at  night;  (c)  third  stage,  as  a 
transition  towards  complete   libert}',  conditional  liberty." 

Question  II  discussed  by  Section  II  of  the  congress  was :  "Can  labor  be 
enforced  upon  prisoners  whose  sentence  on  former  occasions  was  merely  pri- 
vation of  liberty?  If  labor  cannot  be  so  enforced,  should  not  the  deduction 
of  preventive  detention  from  the  term  of  penal  service  be  made  subject  to  a 
voluntary  acceptance  of  labor  during  detention?"  This  question  was  reported 
upon  as  follows  bj^  M.  Jules  Veillier,  director  of  the  House  of  Correction  at 
Fresnes,  Seine : 

"Every  one  is  agreed,  in  theory  at  least,  that  deprivation  of  liberty  can 
only  be  imposed  upon  prisoners,  whether  accused  or  awaiting  their  trial.  The 
tendency  of  the  present  day  is  even  in  favor  of  not  imprisoning  those  awaiting 
their  trial,  except  in  cases  of  absolute  necessity.  We  should  therefore  en- 
deavor to  give  our  prisoners  every  advantage  compatible  with  their  condition, 
and  surround  them  with  all  such  comforts  as  do  not  actually  interfere  with 
the  order  and  safety  of  the  institution.  Thus  in  France,  prisoners  are  allowed 
to  have  their  meals  brought  to  them  from  outside,  to  have  better  bedding 
and  even  a  separate  room ;  all  of  course  at  their  own  expense.  They  may 
wear  their  own  clothes  and  retain  their  beard  and  hair;  they  may  correspond 
every  day  with  their  friends  and  their  solicitors  upon  all  subjects;  receive 
frequent  visits  and  devote  to  the  preparation  of  their  defence  all  the  time  they 
deem  necessary. 

"But  can  labor,  although  bearing  a  penal  character,  be  looked  upon  as  a 
serious  aggravation?  I  think  not.  From  the  prisoner's  point  of  view  it  is,  I 
believe  the  only  means  to  beguile  the  weariness  and  the  anxiety  of  the  days 
of  suspense.  Modern  society  does  not  admit  of  idleness,  and  where  the  admin- 
istration of  the  prison  systematically  arranges  the  prison  labor  and  directs 
the  minds  of  the  prisoners  to  recognize  the  benefit  of  work,  they  seldom  find 
much  difficulty  in  making  the  prisoners  work  with  good  will.  I  speak  from 
long  experience,  and  can  honestly  say.  apart  from  some  very  serious  and  com- 
plicated cases,  where  all  the  attention  of  the  prisoner  is  absorbed  in  his 
defense,  they  are  glad  of  work  and  apply  themselves  assiduously  to  it. 

"Exceptions  to  this  rule  are  generally  due  to  the  fact  that  in  many  houses 
of  detention  the  industries  practised  are  not  remunerative,  bring  dust  and  dirt 
with  them  and  wear  out  the  clothes.  The  prisoners  object  to  this  as  it  makes 
them  unpresentable  to  receive  their  friends  and  their  legal  advisers. 

"These   objections    deserve   careful    consideration,    and   rather    favor -the 

[784] 


Philanthropy,  Chariiics  and  Social  Problems  173 

idea  of  leaving  things  as  thej'  are  now,  that  is  to  say  that  the  prisoner  in  pre- 
ventive detention  is  at  Hberty  to  accept  or  to  refuse  the  work  offered  to  him. 
Moreover,  it  will  always  be  difficult  in  the  case  of  preventive  detentions,  which 
are  generally  of  comparatively  short  duration,  to  organize  a  suitable  system 
of  labor  adaptable  to  all  the  requirements.  Nevertheless  the  liberty  of  refus- 
ing to  work  should,  I  think,  be  limited.  The  fact  of  being  imprisoned,  may  be 
innocently,  should  not  necessarily  prevent  a  man  from  earning  his  living.  No 
one  has  a  right  to  neglect  the  material  things  of  life,  or  to  fail  to  obtain  them 
honestly.  Therefore  the  prisoner  should  be  compelled  to  work,  or  if  finan- 
cially independent,  should  be  required  to  pay  into  the  treasury  such  portion 
of  the  profits  of  which  the  prison  is  deprived  through  his  idleness.  Such 
profits  are  very  small,  representing  only  a  few  pence  per  day,  yet  in  most 
cases  the  prisoner  would  be  led  to  accept  the  work  offered  him.  In  order  to 
guard  the  absolute  liberty  of  the  prisoners  with  regard  to  the  interests  of  their 
defence,  a  release  from  paying  these  small  obligations  could  always  be  given 
those  who  are  without  means  and  who  are  considered  justified  in  spending  all 
their  time  in  the  preparation  of  their  defence.  I  think  we  must  not  stretch  the 
point  any  further  or  admit  that  in  sanctioning  non-submission  to  the  rule  of 
labor,  we  can  refuse  to  deduct  the  preventive  detention  from  the  term  of  penal 
service.  Nor  do  I  think  that  we  ought  to  make  a  distinction  between  individ- 
uals with  criminal  records  and  those  who  are  charged  for  the  first  time, 
chiefly  for  this  reason.  To  my  knowledge  the  prisoner  who  has  already  pre- 
viously been  brought  to  justice,  almost  always  asks  for  work  directly  he 
enters  the  prison." 

The  report  was  summarized  as  follows : 

"i.  For  the  purpose  of  being  entirely  at  liberty  to  prepare  their  defence, 
labor  should  not  be  enforced  upon  prisoners  whether  previously  condemned 
or  not. 

"In  any  case,  as  the  obligation  to  provide  for  himself  devolves  upon 
prisoners,  even  if  reputed  innocent,  in  the  same  degree  as  upon  all  citizens, 
they  must  support  themselves  or  pay  into  the  treasury  that  portion  of  the 
profit  of  the  work  which  is  due  to  it  in  accordance  with  the  penitentiary  regu- 
lations. 

"In  certain  exceptional  cases,  indigent  persons  who  are  considered  justi- 
fied in  spending  all  their  time  in  the  preparation  of  their  defence,  can  be 
relieved  from  this  obligation  by  special  decision  of  the  authorities." 


INDEX  OF  NAMES 


Abbreviations. — In  the  Index  the  following  Abbreviations  have  been  used:  pap., 
principal  paper  by  the  person  named;  com.,  communication  by  the  person  named; 
6.,  review  of  book  of  which  the  person  named  is  the  author;  n.,  note  by  the  person  named; 
r.,  review  by  the  person  named. 


Ac  worth,   W.    M.,   587 
Adler,  E.  N.,  587,  b. 
Alexander,  King,   113 
Alexander  II,  93 
Alexander,  J.  W.,   709 
Algiers,  Dey  of,  140 
Anderson,  L.  A.,  708-720,  pap. 
Andrews,  C.  M.,  749,  753-755,  b. 
Arisaka,  Major,  81 
Arnould,   J.,   462,   474 
Ashley,  P.,  587,  598,  b. 
Ashley,  W.  J.,  611 

Babcock,  O.  E.,  48 

Bacon,  N.,   601 

Baernreither,  294 

Baily,    F.,   243 

de  Balas,  Bela,  781 

Baldwin,  T.,  209,  210 

Balfour,  A.  J.,  770 

de  Barlogh,  E..  782 

Barnes,  W.,  324.  346 

Barrows,  S.  J.,  592,  609-610,  b.,  781, 

Bates,  W.  W.,  422,  441.  442,  450 

Batterson.  J.  G.,  483,  484,  489 

Beck,  J.  M.,  692,  700,  704 

Beehler,  W.  H.,  161-169,  pap.,  179 

Beitler,  A.  M.,  386 

Bennett,  F.  C,  348 

Bennett,  J.  B.,   348,  349.  350 

Bernheimer,  O.  S.,  587,  598-599,  b. 

Bigelow,  W.,  656-664,  pap. 

Bijur,   N.,  778 

Billings,  J.  S.,  749 

Blackstone,  W.,  270,  500 

Bliss,  T.  H.,  99-120.  pap.,  179 

Bloch,   Prof..   103,   104,   105 

Belles,  A.,  437 

Bolter,  J.,  483,  489 

Bond,  B.  W.,   Jr.,   597 

Bourdeau,  J.,  587 

Bourgin,  H.,  587,  b. 

Bourne,  E.  G.,  602,  749,  753-755,  b. 

Bourne,   N.,    209 

Bouvier,   J.,  384 

Brabrook,  294 

Brace,  342 

Bradford,  W.,  336 

Brandenburg,  B.,  609 

Brassey,  Lord,  587,  599-601,  b. 

Brentano.  598 

Brewer,   Justice,    623 

Brown,  W.,  778 

Brumbaugh,  M.  A.,  56 

Butterfield,  O.  E.,  629-641,  pap. 

Butterfield,  R.  W.,  593 

Caesar,  113 
Caldwell,  J.,   339 
Calkins,  R.,  750 
Campbell,  A.   C,  702 


Carlisle,  J.   C,  51 

Carmichael,  W.,  210 

Cervera,  Admiral,  163 

Chamberlain,  J.,  607 

Chaucellor,  W.  E.,  601-602,  b. 

Channing,   E.,   587,   602-603,    b. 

Chapman,  S.  J.,  587,  599-601,  b.,  603  b. 
\    Cheyney,  E.  P.,  749,  753-755,  b. 
I    Chichester,  Admiral,  87 
(    Chlsholm,   Helen,    588 
'    Chitwood,  O.  P.,  597 

Cleveland,   F.   A.,   588,    603-604,   b.,   605- 
680,  pap. 

Clinton,  G.,  751 
I    Clive,  Lord,  123 

Coates,  Major,  779 
i    Cochrane,  Constance,  780 

Cockburne,  G.,  210 
:    Coghlan,  T.  A.,  588 

Cohan,   599 

Colajanni,  N.,  588.  b. 

Cole,   W.    Q.,   712 
782       Comyn,  500 

Confucius,   102,  131 

Conner,   J.   E.,   598,   r.,  603-604,  r.,  761- 
763   r. 

Constantine,  741 

Conway,  T.,  Jr.,  599-601,  r. 

Cook,  J.  M.,  345 

Cooley,  Justice,  367 

Copson,  J.,  336.  432,  433 

Craies,  W.  F.,  780 

Croshan,  G.,  753 

Crosby,   E.   U.,  404-418,   pap. 

Crosby,  U.  C,  397 

Crowell,  J.  F.,  605-606,  r. 

Curti,  Dr.,  782,  784 

Curtis,  H.   S.,  773 

Gushing,    C,    61 

Cutler,   J.   B.,  588,   606,   b. 

Cutting,   P.  L.,  713 

Davenport,  F.  M.,  588,  750,  b. 

Dawson,   M.   M.,   300-307,   pap.,   308-316, 
pap. 

Dean,  A.  F.,  355,  400 

Dearth,  E.  H.,  712 
1    Demolin,   B.,   588 

Deuel,   J.  M.,    775 

Deutsch,  L.,  588,   b. 

Devine,   E.   T.,   777.   778 

Dewey.  G.,  87,  163 

Diaz,  P.,   37,  751 

Dickerson,   O.   M.,   597 

Dillingham,   50 

Dinwiddle,  Emily  W.,  588 

Doane,   W.   C,  747 
'    Dodge,  R.  E..  588 
i    Dodson,  Professor.  304 

Douglas,  W.  A.,  769 
\    Drake,   Sir  Francis,  47 


[787] 


Index  of  Nafnes 


Drake.  T.  E.,  712 

Ureyfuss,   782 

Dryden,  J.  F.,  i'92,  295,  684 

Dubois.  J.,  588 

Duer,   J.,  453 

Dunning,  W.  A.,  750 

Dunwiddie,  Judge.  711 

Durham,  I.  W.,  712 

Dyer,  U.,  58S 

Edwards,  Justin.  750 

Eedy,    A.    M.,    295 

Eliot,    Sir    Charles,    589,    b. 

Eliot,   C.   W..   749 

Ely,  R.  T.,  291,   589,   h. 

Ftignot,  M.,  750 

Fairlie,  J.  A.,  589.  b.,  593 

Farnam,  H.  W..  750 

Farrand.  L.,  750,  753-755,  b. 

Ferri.   E.,   589,   b. 

Ferrier.  L.,  590 

Field.  Justice,  371.  G97,  700,  703 

Finney.    C.    G..   750 

Fish,  C.   R.,  600-607,  b. 

Folk,  R.   E.,  713 

Fouse.  L.  G.,  209-228,  pap.,  243-255,  pap. 

Fowler,    433.    450 

Fox.  H.   F.,   778 

Franklin,  B.,  337,  433 

Frederick  the  Great.   113.   ct  scq. 

Fricke,  W.  A.,  689,  709,  et  seq. 

Galvan.   M.   de   J.,    51 

Gamboro,  Prof.,  428.  429 

Garfield,   J.    R.,    643,   652,   657,   662 

(iarnier.   294 

GermanT.  Emperor  of,  142.  167 

Gibb.   J.   B..  220-242.  pap. 

Gide.  C.,  590.   b. 

Giljohann,  710 

von  Gneist.  757,  759 

Gow.  W.,  422,  453.  et  seq. 

Grant,  U.  S..  47,  48 

Grave.  J..  595 

Gray,  C.  C,  712 

Gray.   G..   51 

Greene,  J.  L.,  750 

Groat.   G.   G.,  597 

Grosscup.  P.   S..  325.  658 

Grosser,  H.  S..  764 

Gruber,  L..  781 

Gumplowicz,  L..  590,  b. 

Gybbons,  W..  209 

Hadlev.   711 

Tlaldane.   K.   R..   598 

ITamer.  J.  W..  256-268.  pap. 

ITammond.  J.  IT..   S3-SS.  pap..  178 

TTancock.    IT.    J..   45-52,   pap..   175 

Hannibal.   113 

riardwick.  294 

ITarrison.    C.    C    176 

Hart.  A.  B..  749,   750.  753-755,  b. 

Hart,   Sir  Robert.  63 

Hav.  .T..  69 

nayes.  R.  B..  772 

Heseman.    J.    R..    205 

TTenrv  IV.  591 

Ilenrv.   Prince.   168.    169 

Ilepner.    A..   590.    b. 

Hero.  413 

Herron.   Belva  M..  597 

Hewes.    F.    W..    601-602.    h. 

TTexnmer.  C.   A..  391-403,  pap. 

Hilibard.  B.  H..  750 

Hicks.  F.  C.,  745-74S,  com. 


Hill,   383 

Hill,  D.   J..   590 

Hirst,  F.   W..   751.   757-759,  b. 

Hoffman,   F.   L.,   283-209,   pap. 

Holt,  Lord,  500 

Homans,    S.,   237,   324 

Hopkins,  452 

Host,  Z.  M..  708,  et  -leq. 

Hotchkiss.  W.  E..  007-609.  r. 

Howard,  T.   E..  661 

Howe,  Julia  W..  48 

Howe,    S.    G.,   48 

Huebner,  S.,  421-452,  pap.,  453-470,  pap., 

681-707,   pap. 
Hutchinson.  W..  777 
Hyde,  H.  B.,  708.   709 
Hyde,    .T.    H.,    709 

Ireland,   A.,  590,  75.5-756.  b. 
Ito,  Count,  72 

Jackson,  A..  607 

Jebb.  R.,  591.  607-609.  b. 

Jefferles.  J.  H..  269-282.  iiup. 

Jefferson.    T.,    663 

Jenckes.   T.   A.,   607 

Jenkins.  E.  F..  777 

Jenks.  A.  E.,  750.  h. 

Jerniean.  T.  R.,  591 

Jevons.  S.,  605 

Joan  of  Arc.   123 

Joerns.  W.  G..  772 

.Johnson,    E.    R..    25-31.    pop.,    175.    756- 

757,  r. 
Jones.   J.   L..   176 
.Joseph,   Archduke.   781 
Joseph.  Prince.  781 
Judson,  F.  N.,  591-,  756-757.  6. 
Justinian,  Emperor.  423 


ICakuzo.  O.,  73 

Kamimura.  Admiral.  79 

Kaneko.  K.,  75-82,  pap..  178 

Tvnye.  P.  L.,  597 

Ke.isbey.    D.    M.,    175.    597 

Kellor.  Frances  A.,  749 

Kelsev,  379 

Kelsev.  C.  606,  r.,  753-755.  r. 

Kidd.   B.,   755 

Kidd.  J..  336 

Knapp.  M.  A..  613-628.  pap. 

Kreusi.  W.  E..  .598-599.  r. 

Knthv.  Dr..  781 


759-761.  r. 


I.abies.  Captain.  164 

Lnndon.   P..   591.   b. 

Lansing.   W.,    769 

T,anyi.  M.  B..  781 

Larrinaga.  1'..  53-56.  pap..  175 

Tjavisse.  E..  591  b. 

Lawrence.  .Justice.  453 

Levasseur.    E..    592.    b. 

Li    Hung-Chans.    64.    72 

Lincoln.    A..    483 

T>indlev.  W..  778 

Linds.nV.  S.  M..  56 

Lindsev.  B.  B..  778 

Linpincott.  H.  C.  192-208 

Llovd.   F..  425 

Lodee.  H.   C.  608 

London.    J..    592.   b. 

Loomis.   F.   B..   19-24.   pan.. 

Lord.    Eliot.    592.    609-610. 

Lott.   E.    S..   483-408.   pap. 

Louis  XIV.  591 

Low.   A.   M..   740-745.   cnm. 

Low,   Seth,  1-15,   pap.,  178 


pap. 


174 
b. 


[788] 


Index  of  Names 


Luther,  Martin,  750 
Lyndhurst,    Lord,    378 

Macedo,  P.,  592,  751,   &. 

Mack,  J.  W.,   778 

Mackay,  T.,  295 

Magellan,   F.,   751,   754 

Magill,  H.  M.,  348 

Magill,  R.  H.,  352 

Mahan,  A.  T.,  140,  163,  167 

Maine.   Sir  Ilenrv.  743 

Maltbie,  M.  R.,  757-759,  r. 

Mansfield,  Lord,  424 

Mariejol,  J.  U.,  591 

Marshall,  J.,  42,  658,  664 

Martel,   C,   102 

Martin,  R,  209 

Martin,  W.  H.,  351 

Maude,   Col.,   107,   108,  109 

McCalla,  Admiral,  164,  165 

Mclntyre,  W.  H.,  709 

McKeag,  E.  C,  597 

McLain,  J.  S.,  592,  5. 

McMaster,   J.    B.,   754 

Meacham,  F.  R.,  593 

Meade.    Emily   F.,    609-610,   r. 

Meeker,  Edna  G.,  779 

Melville,  G.  W.,  121-136,  pap..  179 

Mencius,   131 

Merriam.  C.  E.,  593 

Mever,   H.,   636 

Miller,  B.  J..  277 

Millerand,  A.,  750 

iSIilvoukov.  1*.,  751 

Mitchell,   W..   341 

von   Moltke.    Count,    123 

Monnier,    A.,    751 

Monroe,  J.,   130 

Monroe,  T.  C.  712 

Montesquieu.   Baron.  750 

Montgomerv.  H.  E..  642-655,  pap. 

Moody,    D.    L.    R..    750 

Moody,  Attornev-General,  626 

Moore,  F.  C.  3.55.  398 

Moore.   W.  P..  490-519.  pap. 

Morales.   President.   23 

Morgan,   .Tohn.   339 

Morgan,  .loseph.  342 

Morrell,  E.  de  V..  331.  684 

Miirata,   General.  SI 

Mussey,  II.  R..  ."07 

Napoleon  I.  77.  119 
Napoleon  III,  9.  37 
Napoleon,   Louis.   64 
Nogi.  General.  120 

Oppenheim.  L..  593.  610.  h. 

Ostrander.  D..  359.  et  seq. 

Oviatt,    F.    C.    181-191,    pap.,    335- 

pap.,  359-390,  pap. 
Owen.   D..  477 
Oyama,    124 

Patten.  Mrs.  S.  N..  599 

Pattison.    .1.    N..    6S3 

Paul.    S..   327 

Peabodv,  P.    G..  749 

Perkins.  T.   C.   348 

Perry.  Commodore  M.  C.  62 

Phillips.    W..   462 

Pierson.  W.  W..  606-607.  r. 

Pigafetta.   A.,  751.   b. 

Plehve.   95 

Plimsoll,  S..  430 

Pontiac.   753 

Post,  753 


358, 


Povey,  C,  335 
Prescott,   W.    H.,    754 
Pryor,   J.   H.,   769 

Raven,   A.   A.,   478 

Rawle,  F.,  433 

Raymond,    Lord,    500 

Reches,  595 

Redlich,  J.,  751,  757-759,  &. 

Reed,  W.  A.,  594,  6. 

Reeves,  J.  S.,  751 

Reinsch,  P.  S.,  594.  751 

Renninger,  W.   D.,    603,   r. 

Richardson,  A.  C,  767 

Richelieu,   591 

Riley,  F.  L.,  593 

Riley,  T.  J.,  594,  b. 

Ringwalt,  R.   C,  594,  b. 

Ripley,  E.  G.,   343 

Robertson,   J.    A.,    751 

Robins,    E..    348 

Robinson,  M.  H.,  610-611.  r. 

Rodgers,  F.,  137-145,  pap.,  179 

Rogers,  W.   K.,   772 

Roosevelt,  T.,  48,  49,  50,  317,   663,  684, 

745 
Root,  E..  608 
Rosengarten,   J.    G..    179 
Ross,    E.    A..   594,    759-761,   i. 
Rowe,  C.  594 
Rowe,  L.  S.,  174.  610,  r. 
Russia,   Czar  of.  68,  94,  95,   103 

Salter,  W.,  594,  6. 

Salz,  A.,  752 

Sanborn.   A.   F.,   595,  b. 

Sanborn,  D.  A.,  351 

Sanford,  339 

Sawyer,  371  . 

Schmoller.   G.,   595 

Schiiller,  R.,  595.   b. 

Sellers,  Edith.  596,  b. 

Seyfert,  A.,  436 

Shambaugh.   B.   F..   596 

Sherman,  W.  H.,  752.  b. 

Shimose,   Major,   81 

Shipman,  E..  339 

Sigsbee,   C.   D.,  50 

Simpson,    T.,   305 

Sinclair,    W.    A..    752.    6. 

Smith,  C.  E.,  89-95.  pap.,  179 

Smith.  .L  A.,  771 

Stang,   W.,    596.    b. 

Stanwood,   E..  598 

Stoddart.  A.,  350 

Strohl.  7.50 

Strong,  J..  597.  b. 

Sumner,  C,  48 

Taber,  M.,  311 
Taussig,  F.   W.,   598 
Templeman.  F.,  462,  463,  464 
Thaw.  A.  B..  597 
Thomas.  D.   Y..  601-602,  r. 
Thompson.    A.    W..    780 
Thwaites.  R.  G.,  753,   b. 
Tower,   C.   69 
Trautwine,   .T.   C.   132 
Trenor.  .T.  .7.  D..  592.  609-610,  5. 
Tripoli.  Bev  of.  6.  140 
Troussel.   R.,   782 
Trowbridge,  V..  595 
Turner,  608 
lYittle,  A.  H.,  593 
Tyler,  L.   G.,   753-755.    h. 

'.    Unwin,    G.,    610-611,    6. 


[789] 


Index  of  Subjects 


Upchurch,  Father,  304,  305 
Upson,  T.,  712 
Upton,  General,  150 
Urbye,  A.,  782 

Valerius,  741 

Vance,  W.  R.,  696 

Van  Tyne,  C.  H.,  602-603,  r. 

Veillier,    J.,    784 

Wade,  B.  F.,  48 

Wadsworth,  339 

Walford,  294 

Wallace,  H.  B.,  378,  697 

Walling,   W.   B.,   721-739,  pap. 

Washburn,    E.   B.,   590 

Washington,   G.,   123,   140,   141,   150 

Weiser,  C,  753 

Wellington,  Duke  of,  119 

Wells,  D.  A.,  287 

Wesley,  C,  750 

Wharton,  J.,  174 


Wheaton,  H.,  657,  et  seq. 

Whelpley,  J.  D.,  753,  b. 
1    White,  A.  D.,  48 

White,  P.,  753 
!    Wilkinson,  F.,  294 
i    Williams,  R.  D.,  753 
'    Williams,  T.,  33-44,  pap.,  174 
i    Willis,   H.   P.,   753,  761-763,  5. 

Wilson,  G.   S.,  773 

Wilson,  J.  H.,  59-74,  pap.,  178 
1    Winfrey,  R..  780 

Witte,   S.,   91,   94 

de  Wlassic,  782 
i    Wolfe,    S.    H.,    317-332,    pap.,    689,    690, 

706 
I    Wotherspoon,   W.  W.,  147-160,  pap.,  179 

Wright,  C.  D.,  723 

Wright,  E.,  278,  683 
j    Wyman,  W.  H.,  348 

Young,  J.   R.,  712 
Young,  J.  T.,  755-756,  r. 


INDEX   OF   SUBJECTS 

[Titles  of  articles  are  printed  in  small  capitals.] 


Accident  Insurance,  483-498 

(For   index    of   article   see   pp.    577- 
578^ 

Africa.  "East  Africa  Protectorate,"  by 
Sir. Charles  Eliot,  note.  589 

"Alaska  and  the  Klondike,"  by  J.  S. 
McLain,  note,  592 

Anthropology.  "Latins  et  Anglo-Sax- 
ons," by  N.  Colajanni,  note,  588 

Auditing.  Relation  of,  to  Puelic 
Control.  66.5-680.  Public  control  and 
public  welfare,  666 :  factors  of  public 
control,  667 :  legislative  inquiry  as 
means  of  public  control,  669 ;  execu- 
tive inspection  and  examination  of 
corporate  records,  669 ;  courts  as  in- 
struments of  public  control,  672  ;  sig- 
nificance of  private  or  institutional 
control  of  corporations,  672 ;  legal 
provisions  for  private  corporate  con- 
trol, 673  :  factors  in  effective  private 
control,  675  ;  relation  of  audit  to  cor- 
porate control,  676 ;  to  public  welfare, 
677 ;  independent  audit  of  corpora- 
tions as  means  of  control,  678 

Buffalo.  Parks  and  Public  Playgrounds, 
767 

Charities.     "The     Danish     Poor     Relief 
System."  by  Edith  Sellers,  note,  596 
National     Conference     of     Charities 

and  Corrections,  777 
Notes    on     Philanthropy.     Charities 
and  Social  Problems,  774-783 

Chicago.  Parks  and  Public  Playsrounds, 
764 

"Civics."  by  W.  H.  Sherman,  note,  752 

"Civil  Service  and  Patronage,"  by  C.  R. 
Fish,  review,  606 

Coal  Supplies.  "Royal  Commission's  Re- 
nort  on  the  Coal  Supplies  of  Great 
Britain."  review,  605 

Colonial  Nationalism.  "Studies  In,"  by 
R.  Jebb,  review,  6O7 


Commerce.  American  Commercial  In- 
terests IN  THE  Far  Ea.st,  8-5-88 
Federal  Control  of  Interstate 
Co.MMERCE,  642-655.  Powers  of 
Congress  over  interstate  corpora- 
tions, 643  :  Bureau  of  Corpora- 
tions should  be  empowered  to 
charter  interstate  corporations, 
643  ;  tax  of  one-tenth  of  one  per 
cent,  should  be  imposed  upon  capi- 
tal stock,  644  ;  liabilities  of  stock- 
holders, 645  :  local  taxation.  645  ; 
publicity  concerning  fin:incial  man- 
agement, 646 ;  natural  reports, 
647 :  inspection  of  books,  649  ; 
progressive  tax  on  profits.  652 ; 
rule  for  determining  net  profits. 
654  :  corporations  to  pay  costs  of 
national  regulation,  654 :  federal 
regulation  of  railroads,  655 
"The  Law  of  Interstate  Commerce 
and  Its  Federal  Regulation,"  by 
F.  N.  Judson.  review.  756 
Criminology.    "La  Sociologie  Criminelle." 

by  E.  Ferri,  note,  589 
Divorce.     Marriage     and     Divorce     Pro- 
visions  in    the   State   Constitutions   of 
the  United  States,  745-748 
Dulnth.     Parks  and  Public  Plavgrounds, 

773 
Economics.     "Briefs     on      Public     Ques- 
tions," by  R.  C.  Ringwalt.  note,  594 
"Econoraie   Sociale.  Les  Institutions 
du    Progres    Sociale    au    debut    du 
XX  Siecle."  by  C.  Gide,  note,  590. 
"Schutzzoll    und   Freihandel  die  Vo- 
raussetzungen   und   Grenzen   Ihrer 
Berechtigung,"     by     R.     Schiiller, 
note,  595 
Education.     Training  op  the  Efficient 
Soldier,      The,      149-160.      Physical 
training.    151  :    mental,    154 ;    garrison 
schools.    155  :    special    service    schools. 


[790] 


Index  of  Subjects 


15R ;    stafif    college,    157 ;    post    school, 
158 
Ethnology.     "The  Bontoc  Igorot,"  by  A. 
B.    Jenks,    note,    750 

"Negritos    of    Zambales,"    by   W.    A. 
Reed,  note,  594 
Far  Bast.     American   Commercial   In- 
terests  IN  THE,  S5-S8 

Japan's  Position  in  the  Far  East, 
77-82.     I'he    Chino-Japanese    war, 
1894-95,  77  ;  trouble  with  Russia, 
78  ;  conduct  of  war  by  Japan,  79  ; 
Japanese    as    imitators    of    other 
countries,  81 
Settlement  of  Political  Affairs 
in   the    Far   East,   61-74.      Past 
policy    of    the    United    States    in   ! 
Orient,  61 ;   "open   door,"  62 ;  at-   j 
tempts  to  divide  China,  63  ;  Boxer 
outbreak,     66 ;     trouble     between 
Japan    and    Russia,    68 ;    "yellow 
peril"  a  myth,  71 
"The    Far    Eastern   Tropics,"    by    A. 
Ireland,  review,  755 
Finance.     "The  Bank  and  the  Treasury," 

by  F.  A.  Cleveland,  review,  603 
Fire  Insurance.    Fire  Insurance  :  Rates 
AND  Schedule  Rating^  391-403 
Fire  Prevention,  404-418 
Historical     Study     of     Fire     In- 
surance IN  the  United  States, 
335-358 
Standard  Fire   Insorancb  Policy, 

359-390 
(For   index  of  articles   see  pp.   578- 
580) 
Government.     "Local       Government       In 
England,"  by  J.  Redlich,  review,  757 
"The  National  Administration  of  the 
United    States    of    America,"     by 
J.  A.  Fairlie,  note.  589 
Municipal     Government,     Notes     on, 
764-773- 
History.     "America's     Aid     to    Germany 
In  1870-71,"  by  A.  Hepner.  note,  590 
"The     American     Nation,"     5    vols.. 
(1st  Series),  A.  B.  Hart,  Ed.,  re- 
view,  753 
"Early    Western    .Tournals."    R.    G. 

Thwaites.  Ed.,  note.  753 
"Histoire  de  France,"  Vol.  vi.  Part 

11,   E.   Lavisse,  Ed.,  note,  591 
"Iowa  :  The  First  Free  State  in  the 
Louisiana   Purchase,"   bv   W.    Sal- 
ter, note.   594 
"Magellan's      Voyage      Around      the 
World,"  by  A.  Pigafetta.  note.  751 
"Publications  of  Mississippi  Histori- 
cal Society."  Vol.  viii,  F.  L.  Rilev, 
Ed.,  note,  593 
"The     United     States.     1607-1904." 
Vol.    1,   by   W.    E.    Chancellor   and 
F.    W.    Hewes,    review,    601 
"A   History   of   the   United    States." 
Vol.    i,    by    E.    Channing,    review, 
602 
Immigration.      "The  Problem   of  the  Ira- 
migrant,"  by  J.  D.  Whelpley,  note,  753 
"The    Italian    in     America."    by    E. 
Lord.  J.   J.   D.  Trenor,   S.    J.  "Bar- 
rows, review,  609 
Index     to     Insurance     Articles     In     Vol. 

xxvi.    No.   2.   pp.   577-584 
Industry.      "Industrial     Organization     in 
the    Sixteenth    and    Seventeenth    Cen- 
turies," by  G.  Unwin,  review,  610 


"The  Lanca.^hire  Cotton  Industry," 
by  S,  J.  Chapman,  review,  603 
Insurance.  Federal  Supervision  and 
Regul.\tion  of  Insurance,  6S1-707 
Historical  review  of  federal  super- 
vision, 682  ;  arguments  in  favor  of  na- 
tional supervision,  680 ;  insurance  in 
theory  and  in  practice  an  interstate 
business,  690  :  arguments  against  na- 
tional supervision,  692  ;  constitution- 
ality of  national  supervision,  697 : 
contending  views  as  to  applicability  of 
"insurance  cases"  to  question  at  is- 
sue, 698  ;  conclusion,  704. 

Accident    Insurance.     See    Accident 

Insurance. 
Fire.     See  Fire  Insurance. 
Life.     See   I;ife   Insurance. 
Liability.      See  Liability  Insurance. 
Marine.     See  Marine  Insurance. 
Policy  forms,  523-574 
Intern.^tional    Le.\dership,    Responsi- 
bilities  of.   27-31.     Economic   leader- 
ship   of    LTnited    States,    27 :    political 
leadership,  29  ;  educational  leadership. 
30. 
.Tapan's  Position  in  the  Far  Evst      See 

Far  East. 
Jew.      ".Jews  in   Many   Lands,"  by   E.   N 
Adler.  note,  587 

"The    Russian    .Tew    in    the    United 
States,"    C.    S.    Bernheimer,    Ed., 
review,  598 
Labor.      "The  Labor  Movement  In  Amer- 
ica," by  R.  T.  Ely,  note,  589 
London's  Unemployed.   779 
A  Suggestion   for  the  Prevention  of 

Strikes,  740-745 
"Work  and   Wages."   by   Lord   Bras- 
sey    and    S.    .7.    Chapman,    review, 
599 
Law.     "International    Law."    Vol.    1,    bv 

L.  Oppenheim.  review,  610 
Liability   Insurance,  499-519 

(For  index  of  article  see  p.  580^ 
Life  Insurance.  The  Distr;rution  of 
Surplus  in  Life  IxsuRANrE:  A  Prob- 
lem IN  Supervision,  70S-720.  Contro- 
versy between  Wisconsin  Commis- 
sioner of  Insurance  and  Equitable  Life 
Assurance  Society.  708;  opinions  of 
state  insurance  commissioners  regard 
ing  distribution  of  surplus.  711  :  argu- 
ments aeainst  deferred  dividend  con- 
tracts. 714:  such  contracts  not  main 
source  of  evils  in  life  insurance.  717  : 
ratios  of  dividends  to  premium  re- 
ceipts. 718:  nc'essitv  for  control  bv 
policyholders.  710 

Assessment   Life    Insurance,   300- 

307 
CalcuL/VTion   of   TjIfe   Office   Pre- 

Jiir-Ms,  229-242 
Economic  Place  of  Life  Insurance 
and    Its    Relation    to    Society, 
181-191 
EssEXTi.\Ls  OF  Life  Insurance  Ad- 
ministration, 192-208 
Fraternal  Life  Insur.^nce,  308-310 
Industrial  Insurance,  283-299 
Lapse  and  Reinstatement,  269-282 
Life  Insurance  Invest.ments,  256- 

268 
Organization  and  Management  oF" 
the   Agency    Sv^tem.   243-255 


[791] 


Index  of  Subjects 


Policy     Contracts     in     Life     In- 
surance, 209-228 
State    Supervision    op    Insukancb 

Co.MPANiKs.   317-332     . 
(For  index  of  articles  see  pp.  580- 

582) 
"Liquor  Problem,"  note,  749 
"Lynch  Law,"   by  J.   E.   Cutler,   review, 

606 
Marine     Insurance.     Develop.ment    and 
Present   Status   of   Marine   In- 
surance IN  THE  United  States. 
421-452 
Policy    Contracts    in   Marine    In- 
surance, 453-479 
(For  index  of  articles  see  pp.  582- 
584) 
Marriage  and  Divorce  Provisions  in  the 
State     Constitutions     of     the     United 
States,  745-748 
Mexico.     "La    Evolucion    Mercantil,    Co- 
municaciones    y    Obras    Publicas,    La 
Hacienda  Publica,"  by  P.  Macedo,  note,. 
751 
National     Regulation     of    Railroads, 
613-628.     Basis    of     regulation.     614: 
changes  required  in  present  law,  616 ; 
tribun.ils    of    regulation,    622 ;    courts 
not     adequate,     626 ;     administrative 
authority,  627 

Limitations  Upon  National  Regu- 
lation   OF    Railroads.    629-641. 
Extent  of  federal  power  over  rail- 
roads, 629  ;  limitations  imposed  bv   , 
economic    laws.    632 ;    limitations   | 
by  common  laws,  638  ' 

Navy  of  the  United  States,  Extent  | 
to  Which  the.  Should  be  Increased. 
139-145.  Resume  of  history  of  United 
States  navy.  139  :  necessity  for  navy, 
141  ;  naval  program  of  England,  Ger- 
many and  France.  143:  what  United 
States  should  do.  144 

The  Needs  of  the  Navy.  163-169. 
Results  of  training  and  drill.  163  ; 
time  required  to  complete  modern 
battleship,  164 :  Panama  Canal 
will  increase  work  of  navy,  165  ; 
fifty  battleships  required.  166 ; 
American  and  European  navies 
compared.  167. 
Negro.      "The  Aftermath  of  Slavery."  by 

W.  A.  Sinclair,  note.  752 
New  York  Society  for  the  Prevention  of 

Truelty  to  Children,  774 
Parks  and  Public  Playgrounds,  764-77.^ 
Philanthropy.  Charities  and  Social  Prob- 
lems. Notes  on.  774-785 

Crippled    Children's    Driving    Fund, 
778 
Philipnines.      "Our   Philippine   Problem," 

by  H.  P.  Willis,  review.  761 
Policy   Forms.   Appendix  of.  523-574 
Political  Economy.     "Elements  of  Politi- 
cal  Economy,"  bv  B.   Levasseur,  note. 
592 
Politics.      "Primary  Reform,"   note.   593 
Porto    Rico.    CoxniTinxs    tn,    55-56 
Prison      Conference,      International,      at 

Buda-Pesth.  781 
Railroads.      Limitations      Upon      Na- 
tional Regulation  of.     See  National 
Regulation. 

National  Regulation  of  Rail- 
roads. 613-628.  See  National 
Regulation 


Religion.     "Primitive  Traits  in  Religious 
Revivals,"   by   F.    M.   Davenport,   note, 
750 
Russia,    The    Internal    Situation    in, 
91-95.     Industrial      and      agricultural 
development,  91  ;  Zemstvo  Institutions, 
92 
Santo  Domingo,  The  Situation  in,  47- 
52.      Political    condition,    47 :    Grant's 
attempt    to    annex.    48 ;    indebtedness, 
49  ;    resource^i.   40  :   difference  between 
Haiti   and   Santo   Domingo,   50 ;   Inter- 
ference of  L'Uited   States  necessary,  51 
Seattle.     Parks  and  Public  Playgrounds, 

772 
Siberia.     "Sixteen  Years  in   Siberia,"  by 

L.  Deutsch.  note.  588 
Socialism.     "Fourier :       Contribution      a 
I'etude    du     Soeialisme    fran?ais,"    by 
H.  Bourgin.  note,  587 

"Paris   and    the   Social   Revolution," 

by  A.  F.  Sanborn,  note,  595 
"Socialism  and  Christianity,"  by  W. 

Stang,  note,  596 
"War    of    the    Classes."    by    J.    Lon- 
don, note,  592 
Social  Problems.    Notes  on  Philanthropy, 
Charities  and  Social  Problems.  774-785 
"Social   Progress,"   J.    Strong,   Ed.,   note, 

597 
Sociology.     "Foundations    of    Sociology," 
by   E.   A.   Ross,   review,   759 

"Grundriss  des  Sociologie"   C2d  ed.), 

by  L.  Gumplowicz,  note.  590 
"The  Higher  Life  of  Chicaso."  bv  T. 

.1.  Riley,  note.  594 
"The   Long    Day,"    by   A    New   York 
Working  Girl,   note,   749 
Tariff.     "Modern   Tariff  History."   by   P. 

Ashlev.   review.   598 
Tibet.      "The    Opening   of   Tibet,"    by    P. 

Landon.  note.  591 
Trade  Unionism.  British  and  Amer- 
ican, 721-739.  Contrast  between  Brit- 
ish and  American  trades  unions.  721  : 
British  unions  based  upon  skill  in 
trade.  723  :  ideal  of  British  union  to 
monopolize  its  particular  trade.  723  : 
unskilled  labor  not  organized  in  Great 
Britain,  726  :  unskilled  labor  in  Amer- 
ican unions.  727  :  unions  depending  on 
the  label.  728  :  federation  of  unions  in 
Great  Britain  and  United  States,  729  ; 
growth  of  unions  in  the  two  coun- 
tries, 731  :  organization  of  women. 
732 ;  financial  policy  of  British  and 
American  unions.  735 ;  payments  to 
carry  on  strikes.  736. 
Trust  Regulation.  Constitutional 
Difficulties  of.  656-664.  Power  of 
Congress  to  grant  chnrter  an  implied, 
not  direct,  power.  656 :  conflict  be- 
tween state  and  national  authority. 
660  ;  economic  necessity  for  trust  regu- 
lation not  urgent.  663^ 
United  States.  Attitude  of  the.  To- 
ward Other  Powers,  21-24 

The  Position  of  the  United 
States  Among  Nations,  1-15. 
Russia  as  a  world  power.  1 : 
China.  2  :  England.  2  ;  France.  3  : 
Germany,  4 :  .lapan.  5 ;  United 
States.  6 :  immigration  into 
United  States,  fi :  education.  7 : 
natural  resources.  8  :  imperialism. 
8 :  Monroe  Doctrine.  9 :  Panama 
Canal.    10;    Chinese    immigration. 


[792] 


Index  of  Subjects 


11  ;  commerce  and  the  tariff,  12  ; 
international    influence   of   United 
States,  14. 
War.     Land  Conflicts,  The  Important 
Elements  in  Modern,  101-120.    Criti- 
cism of  Professor  Bloch's  "Ttie  Future 
of  War,"  103  ;  percentage  of  deaths  in 
important  battles  of  Europe  and  Amer- 
ica, 107  ;  conclusions  to  he  drawn  from 
figures     of    losses — (l)     tendency     to 
decrease,    112 ;    (2)    due  to   concentra- 
tion   of    energy,    115    (3)    decrease    of 
death    losses   from    wounds,    118;    (Ji) 
explanation    found     in    perfection     of 
weapon,     118 ;     (5)     at     present     few 
deaths  after  defeat,  119 ;    (6)   adapta- 
tion  of   scientific   principles,    119 
Naval   Conflicts,   The   Imi'Ortant 
Elements  in,  123-136.     Marching 
of   mediaeval    and   modern   armies, 
123  ;    cost  of  modern   armies   and 
navies,    124 ;    war   as    a    business, 
125  ;  modern  warship  cannot  oper- 
ate far  from  repair  base,  126  ;  ten- 
dency  of   nation    to   inquire   more 
rigidly  into  naval  administration, 
127  ;  vacillating  opinions  of  naval 


experts,  127  ;  navy  must  be  prin- 
cipal arm  of  national  defense, 
128  ;  responsibilities  of  industrial 
wealth  and  resources,  129 ;  for- 
eign estimate  of  our  naval 
sti-ength,  129  ;  assumption  of  re- 
sponsibilities beyond  natural  boun- 
daries a  serious  weakness,  130 ; 
Philippines  a  naval  burden,  130  ; 
inter-oceanic  canal,  132  ;  relation 
to  minor  American  republics,  133  ; 
magnitude  of  responsibilities  be- 
yond borders,  133  ;  important  ele- 
ments of  naval  strength  applica- 
ble to  present  condition,  134 
Washington,    D.    C.     Parks    and    Public 

playgrounds.  771 
West  Indies.  Europe  and  the  United 
States  in  the^  35-44.  Population  of 
Caribbean  countries,  35 ;  failure  of 
European  colonial  system  in  Latin 
America,  36 ;  economic  interests  of 
United  States  in  Latin  America.  37 ; 
influence  of  Panama  Canal,  38 ;  devel- 
opment of  American  constitutional  sys- 
tem, 39  ;  application  of  system  to  West 
Indies,  40 ;  Monroe  Doctrine,  42 


THE  ANNALS 


OF   THE 


AMERICAN  ACADEMY 


OF 


POLITICAL  AND  SOCIAL  SCIENCE 


ISSUED  BI-MONTHLY 


VOL.  XXVI 


JULY— DECEMBER  1905 


Editor:  EMORY  R.  JOHNSON 
ASSOCIATE  editors:  SAMUEL  McCUNE  LINDSAY,  JAMES  T.  YOUNG 


PHILADELPHIA 

Amkricax  Academy  of   Political  and  Social  Science 

1905 


Cvpyriijht,  iy:5,  by  the  American  Academy  of  Political  and  Social  Science 

All  rights  reserved 


CONTENTS 


PRINCirAL  PAPERS 

PAGE 

Anderson,  L.  A.     The  Distribution  of  Surplus  in  Life  Insur- 
ance :  A  Problem  in  Supervision 708 

Beehler,  William  H.    The  Needs  of  the  Navy 161 

BiGELOW,  Warren.     Constitutional  Difficulties  of  Trust  Regu- 
lation     656 

Bliss,  Tasker  H.     The  Important  Elements  in  Modern  Land 

Conflicts    99 

BuTTERriELD.  O.  E.    Limitations  Upon  National  Regulation  of  ^ 

Railroads    629 

Cleveland,  Frederick  A.    The  Relation  of  Auditing  to  Public 

Control    665 

Crosby,  Everett  U.     Fire  Prevention 404 

Dawson,  Miles  M.    Assessment  Life  Insurance 300 

Dawson,  Miles  M.    Fraternal  Life  Insurance 308 

FousE,  L.  G.     Policy  Contracts  in  Life  Insurance 209 

FouSE,  L.  G.  The  Organization  and  Management  of  the  Agency 

System    243 

GiBB,  J.  Burnett.    The  Calculation  of  Life  Office  Premiums  .  .   229 

Hamer,  J.  W.    Life  Insurance  Investments 256 

Hammond,  John  Hays.    American  Commercial  Interests  in  the 

Far  East 83 

Hancock,  Henry  J.    The  Situation  in  Santo  Domingo 45 

Hexamer,  Charles  A.     Fire  Insurance — Rates  and  Schedule 

Ratmg : 391 

Hoffman,  Frederick  L.    Industrial  Insurance 283 

ITuerner,  Solomon.    The  Development  and  Present  Status  of 

Marine  Insurance  in  the  Lmited  States 421 

HuEBNER,  Solomon.    Policy  Contracts  in  Marine  Insurance.  .  .   453 
HuEBNER,  Solomon.     Federal  Supervision  and  Regulation  of 

Insurance    681 

Jf.ffertks,  J.  H.     Lapse  and  Reinstatement   269 

(iii) 


iv  Contents 

PAOB 

Johnson,  Emory  R.    Responsibilities  of  International  Leader- 
ship      25 

Kaneko,  Kentaro.    Japan's  Position  in  the  Far  East 75 

Knapp,  Martin  A.    National  Regulation  of  Railroads 613 

Larrinaga,  Tulio.     Conditions  in  Porto  Rico 53 

LiPPiNcoTT,  Henry  C.    The  Essentials  of  Life  Insurance  Ad- 
ministration        192 

LooMis,  Francis  B.     Attitude  of  the  United  States  Toward 

Other  American  Powers  19 

LoTT,  Edson  S.    Accident  Insurance 483 

Low,  Seth.     The  Position  of  the  United  States  Among  the 

Nations  i 

Melville,  George  W.    The  Important  Elements  in  Naval  Con- 
flicts        121 

Montgomery,   Harry   Earl.     Federal    Control   of   Interstate 

Commerce    642 

Moore,  W.  F.    Liability  Insurance 499 

OviATT,  F.  C.     Economic  Place  of  Life  Insurance  and  Its  Re- 
lation to  Society 181 

OviATT,  F.  C.    Historical  Study  of  Fire  Insurance  in  the  United 

States    335 

OviATT,  F.  C.    Standard  Fire  Insurance  Policy .   359 

Rodgers,  Frederick.     The  Extent  to  Which  the  Navy  of  the 

United  States  Should  Be  Increased 137 

Smith,  Charles  Emory.    The  Internal  Situation  in  Russia.  .  .     89 
Walling,  William  English.     British  and  American  Trade 

Unionism    7^'^ 

Williams^  Talcott.    Europe  and  the  United  States  in  the  West 

Indies    33 

Wilson,  James  H.     The  Settlement  of  Political  Affairs  in  the 

Far  East 59 

Wolfe,  S.  H.    State  Supervision  of  Insurance  Companies  ....   317 
WoTHERSPOON,  WiLLiAM  WALLACE.     The  Training  of  the  Effi- 
cient Soldier 147 


Appendix  to  "The  United  .States  as  a  World  Power"   171 

Appendix  to  "Insurance'    .521 


Contents  v 

COMMUNICATIONS 

PAQH 

Hicks,   Frederick   Charles.     Marriage  and   Divorce   Provisions   in  the 

State  Constitutions  of  the  United  States  745 

Low,  A.  Maurice.     A  Suggestion  for  the  Prevention  of  Strikes  740 


BOOK  DEPARTMENT 
Conducted  by  Carl  Kelsev 


reviews 


Ashley,  Percy.     Modern  Tariff  History — /.  E.  Conner 598 

Bernheimer,    C.    S.,    Ed.     The    Russian    Jew    in    the    United    States. — 

W.  E.  Kreusi   598 

Brassey,  Lord,  and  Chapman,  S.  J.    Work  and  Wages. — T.  Conzijay,  Jr.  .  599 
Chanxellor,  W.  E.,  and  Hewes,  F.  W.     The  United  States:  A  History 

of  Three  Centuries,  1607-1904,  Vol.  l.—D.  Y.  Thomas 601 

Chaxning,  Edward.     A  History  of  the  United   States,  Vol.    I. — C.  H. 

Van    Tyne    602 

Chapman,  S.  J.     The  Lancashire  Cotton  Industry :   A  Study  in  Economic 

Development. — W.   D.    Renninger    603 

Clen^eland,  F.  a.    The  Bank  and  the  Treasury. — /.  E.  Conner 603 

Coal   Supplies.     Royal   Commission's   Report   on   the    Coal   Supplies    of 

Great  Britain. — /.  F.  CrozvcU  605 

Cutler,.  J.  E.     Lynch  Law. — Carl  Kelsey  606 

Fish,    C.    R.     The    Civil    Service    and    Patronage    (Harvard    Historical 

Studies,  Vol.  XI.).— JV.  W.  Pierson  606 

Hart,  A.  B.,  Ed.    The  American  Nation.    Five  Volumes.    First  Series. — 

Carl  Kelsey  753 

Ireland,  Alleyne.    The  Far  Eastern  Tropics. — /.  T.  Young 755 

Jebb,  Richard.     Studies  in  Colonial  Nationalism. — W.  E.  Hofchkiss  ....  607 
JuDSON.  F.  N.     The  Law  of  Interstate  Commerce  and  its  Federal  Regu- 
lation.— E.  R.  Johnson   •  756 

Lord,  Eliot,  Trenor.  J.  D.,  and  Barrows.  S.  J.     The  Italian  in  America. 

Emily  Fogg  Meade    609 

Oppenheim,  L.    International  Law :  A  Treatise,  Vol.  I. — L.  S.  Rozve  ....  610 

Redlich,  Josef.    Local  Government  in  England. — M.  R.  Maltbie  757 

Ross,  E.  A.     Foundations  of  Sociology. — Carl  Kelsey  75Q 

Unwin.  George.     Industrial    Organization   in  the   Sixteenth   and   Seven- 
teenth Centuries. — M.  H.  Robinson  610 

Willis.  H.  P.     Our  Philippine  Problem. — /.  E.  Conner 761 


vi  Contents 


NOTES 

PAGE 

Adler,  E.  N.    Jews  in  Many  Lands 587 

A  New  York  Working  Girl.    The  Long  Day 749 

BouRGiN,  H.     Fourier   (Contribution  a  I'Etude  du  Socialisme  Frangais) .  587 

CoLAjANNi,   N.     Latins  et    A.nglo-Saxons    588 

Columbia    University    Studies    in    History,    Economics    and    Public   Law, 

Vol.  XIX,  No.  3,  Vol.  XXIIT,  Nos.  2  and  3   597 

Committee  of  Fifty.  The.     The  Liquor  Problem  749 

Davenport,  F.  M.     Primitive  Traits  in  Religious  Revivals  750 

Deutsch,  L.     Sixteen  Years  in  Siberia  588 

Eliot,  Sir  Charles.    The  East  Africa  Protectorate  589 

Ely,  R.  T.     The  Labor  Movement  in  America.     New  Edition 589 

Fairlie,   J.   A.     The   National   Administration  of  the  United   States   of 

America     589 

Ferri,  E.    La  Sociologie  Criminelle 589 

GiDE,  C.     Economic  Sociale,  Les  Institutions  du  Progres  Sociale  au  debut 

du  XX  Siecle   ^go 

GuMPLOwicz,  L.    Grundriss  des  Sociologie.     Second  Edition  590 

Hepner,  a.     America's  Aid  to  Germany  in  1870-71   .•  .   590 

Illinois  University  Studies,  A'^ol.  I,  Nos.  9-10  597 

Jenks,  a.  E.     The  Bontoc  Igorot   750 

Johns  Hopkins  University  Studies,  Series  XXIII,  Nos.  3-4,  5-6,  7-8  ....   597 

Landon,  P.    The  Opening  of  Tibet 591 

Lavisse,  E.    Histoire  de  France.     Tome  Sixieme.  II 591 

Levasseur.  E.     Elements  of  Political  Economy 1^92 

London,  J.     War  of  the  Classes   c^go 

McLain,  J.  S.     Alaska  and  the  Klondike 592 

Macedo,  p.     La  Evolucion   Mercantil,  Comunicaciones  y  Obras  Publicas, 

La    Hacienda    Publica    7c; r 

Mississippi   Historical    Society,    Publications   of.     Edited  by  F.   L.   Rilev. 

Vol.  VIII :.  593 

Pigafetta,  a.     Magellan's  Voyage  Around  the  World 751 

Primary  Reform.     Publications   of  the  Michigan   Political   Science  Asso- 
ciation.    Vol.  VI,  No.  I   t^93 

Reed,  W.  A.     Negritos  of  Zambales  594 

Riley,  T.  J.     The  Higher  Life  of  Chicago  594 

Ringwalt,  R.  C.     Briefs  on  Public  Questions  594 

Salter,  W.     Iowa:  the  First  Free  State  in  the  Louisiana  Purchase 594 

Sanborn,  A.  F.     Paris  and  the  Social  Revolution  595 

ScHULLER,  R.     Schutzzoll  uud  Freihandel  die  Voraussetzungen  und  Gren- 

zen    Ihrer   Berechtigung    c,gs, 

Sellers,  Edith.    The  Danish  Poor  Relief  System 596 

Sherman,  W.   H.     Civics    752 

Sinclair,  W.  A.     The  Aftermath  of  Slavery   752 

Staxg,   W.     Socialism    and   Christianity    596 


Coiiicnis  vii 

rAGB 

Strong,  Josiah,  Ed.     Social  Progress 597 

'rnwAiTES,  R.  G.,  Ed.     Earl}-  Western  Journals,  1748-1765  7^:-, 

WiiKLPi.EY,  J.  D.    The  Problem  of  the  Immigrant 753 


NOTES 
I.     MUNICIPAL  GOVERNMENT 

Conducted  by  L.  S.  Rowe 

Parks   and   Public   Playgrounds:   The   Record   of  a   Year's   Advance. — A 

Symposium     764 

Chicago,  Buffalo,  ^^'ashington,  D.  C.  Seattle.  Duluth. 


II.     PHILANTHROPY,    CHARITIES    AND    SOCIAL    PROBLEMS 

Conducted  by  Mrs.  Emily  E.  Wi;.li.\mson' 

Crippled  Children's  Driving  Fund  778 

Housing  Problem,  English   779 

London's  Unemployed    779 

National  Conference  of  Charities  and  Corrections    yyy 

New  York  Society  for  the  Prevention  of  Cruelty  to  Children 774 

Prison  Conference,  International,  at  Buda-Pesth,  Hungary 781 


